College student charged with fraud in Emulex hoax

Authorities move to recover the $241,000 `profit'

Market adventure

September 01, 2000|By BLOOMBERG NEWS

LOS ANGELES - U.S. prosecutors charged a 23-year-old college student yesterday with defrauding investors by issuing a phony press release that sent shares of Emulex Corp. tumbling last Friday.

The suspect, El Camino Community College student Mark Simeon Jakob of El Segundo, Calif., is a former employee of Internet Wire, the Internet service that distributed the press release.

Jakob was charged specifically with wire fraud, acting with intent to defraud, participating in a scheme to defraud and securities fraud.

A federal magistrate set bail at $100,000, requiring Jakob to undergo psychiatric testing as a condition of his release. Prosecutors had asked for a $250,000 bail.

The wire and securities fraud charges carry maximum penalties of 15 years in prison, authorities said, adding that they are suing to recover the $241,000 that Jakob is accused of realizing by trading stock of Emulex Corp., a data-storage equipment maker.

Authorities said Jakob had borrowed and sold 3,000 Emulex shares on Aug. 17 and 18 at about $80 a share, hoping to profit by repurchasing the shares at a lower price.

By Aug. 24, the stock had risen to $113, leaving him with $97,000 in paper losses.

That evening, authorities say, Jakob used a personal computer at the college library in Torrance, Calif., to instruct Internet Wire to issue the bogus press release.

Authorities say Jakob used a Yahoo! Inc. e-mail account he had opened minutes earlier to send the message.

Emulex shares fell nearly 62 percent last Friday morning after the bogus press release was distributed by Internet Wire and picked up by Bloomberg News and other news services.

When Emulex shares plummeted on the false information, Jakob covered his short position, earning $54,000, and minutes later purchased 3,500 shares, which he sold Monday after the stock had rebounded, earning $186,000, authorities said.

Investigators said they traced Jakob by following a trail of electronic footprints left by the e-mail that he had sent to Internet Wire.

The trail led to a personal computer at the college library that Jakob had been seen using, they said.

"I think they were on the trail very quickly," Emulex Chief Executive Officer Paul Folino said in an interview on CNBC television, adding that the suspect has no association with the company.

The FBI's computer-crime squad, the U.S. Securities and Exchange Commission, the Chicago Board Options Exchange and the Nasdaq stock market have been investigating the bogus release. The investigation is continuing, but authorities said they do not have any other suspects.

"We brought to justice an individual who hid behind the Internet," said FBI Assistant Director James DeSarno.

"They [the FBI] followed the money," said Mark Rasch, vice president of cyberlaw at the consulting firm Global Integrity Corp. Emulex shares rose $4.1875 to $104.6875 yesterday, taking them to within $9 of where they were before their dramatic descent.

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