- The Washington Times - Friday, September 1, 2000

LOS ANGELES The FBI arrested a former employee of an Internet press-release distributor and accused him yesterday of making nearly $250,000 by putting out a phony press release last week that sent a high-tech company's stock plummeting.
Federal authorities said Mark Jakob, 23, a junior college student who lives in El Segundo, Calif., had worked at Internet Wire, which distributed the bogus release about turmoil at Emulex Corp.
Mr. Jakob used a computer at El Camino Community College to construct and send the release, the Securities and Exchange Commission and federal prosecutors said.
U.S. Attorney Alejandro Mayorkas said Mr. Jakob left Internet Wire on "good terms" Aug. 18. His job was to receive press releases from companies and post them on the Internet Wire Web site, Mr. Mayorkas said.
The phony release, issued Friday, said the chief executive of Emulex, a Costa Mesa maker of fiber-optic equipment, had quit and that the company was restating its quarterly earnings from a profit to a loss.
Emulex's stock plunged as much as 62 percent most of it in a 15-minute free fall after some financial news services ran stories based on the bogus release.
Emulex lost more than $2 billion in market value when its stock fell as low as $43 from the previous day's closing of $113.06.
The stock eventually recovered most of its ground after the company denied the reports.
Federal investigators said Mr. Jakob executed a "short sale" of 3,000 Emulex shares. A short sale involves selling borrowed shares of a stock that the trader does not own in anticipation that the price will decline.
Mr. Jakob bought the shares at $72 and $92 a share, but when the price rose above $100, he concocted the plan to spread bad news about Emulex in hopes of driving the price down, Mr. Mayorkas said.
During the evening of Aug. 24, Mr. Jakob used the college computer to send an e-mail to Internet Wire using language that led Internet Wire employees to believe the release was verified, the U.S. attorney said.
The press release was distributed the morning of Aug. 25. Authorities said that within hours, Mr. Jakob executed trades to cover his short position at a profit of $50,000. Later that day, he bought 3,500 new shares at $52 per share and three days later sold those shares, making a profit of $186,000, authorities said.
Mr. Mayorkas said investigators were able to trace the e-mail to the computer in the college library's media technology center that day and linked Mr. Jakob to it within hours.
"We in law enforcement know how to use the Internet, too," Mr. Mayorkas said.
Paul Folino, president and chief executive of Emulex, said the company was pleased by the swift action taken by federal authorities.
"This kind of electronic terrorism cannot be tolerated," he said in a statement. "While there will always be challenges in completely safeguarding the integrity of electronic information, in the aftermath of this incident, we have been gratified by the promise of increased vigilance and scrutiny by financial news services worldwide."
Emulex rose $4.19 to $104.69 in trading yesterday on Nasdaq.
The incident raised alarming concerns about the accuracy of information distributed via the Internet and the speed with which it can travel in the computer age.
The information originated on Internet Wire, a 6-year-old on-line distributor of press releases. It said last week that the hoax was perpetrated by someone claiming to be with a public relations agency representing Emulex.
Other companies also have seen their stocks manipulated by false information disseminated on line.
Lucent Technologies' stock fell 4 percent in March after a fake news release was posted on an Internet bulletin board saying that Lucent would report lower earnings. Last year, PairGain Technologies' stock jumped more than 30 percent after a former employee duped investors with a fake Internet news story saying the company was about be taken over.

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