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Suspect Arrested in Emulex Press Release HoaxAired August 31, 2000 - 3:22 p.m. ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
BERNARD SHAW, CNN ANCHOR: I'm Bernard Shaw in Washington.
Last week, someone put out a phony press release which caused the shares of the Emulex Corporation, a small-tech, high-tech firm in California -- the shares plunged. Today, the FBI and the SEC are announcing arrests at a news conference just under way in Los Angeles.
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ALEJANDRO N. MAYORKAS, U.S. ATTORNEY: I'm extremely proud of the swiftness of our law enforcement in response to the crime that caused losses to investors throughout the country, and that was apparently committed with the hope that the anonymity knee afforded by the Internet would be the criminal's protection.
We in law enforcement, however, know how to use the Internet, too. Alongside me today are those who share credit for the swiftness of our response: Valerie Caproni, the regional director of the Securities and Exchange Commission; James Bedarsarno Jr. (ph), the assistant director in charge of the FBI; Sandra Harris and Kelly Bowers (ph) of the SEC; and Pam Johnson (ph) and Carl Moore (ph), the prosecutors responsible for bringing this case to a swift charge.
Allow me to review the facts and investigative steps that led to this morning's arrest. Last Friday, a false press release concerning Emulex Corporation was distributed over the Internet by a company called Internet Wire. The release falsely represented that Emulex was under investigation by the SEC, that its CEO was resigning, and that the company had revised its previous quarter's earnings to report a loss.
The false press released distributed by Internet Wire caused the stock of Emulex to plummet from a price a $113 per share to approximately $45 per share, resulting in a drop in the company's value of more two billion dollars. The false press release was sent by e-mail to Internet Wire, a company that distributes company news and press releases over the Internet.
The e-mail included not only language reflected familiarity with the procedures used at Internet Wire, but also a representation that the sales department at Internet Wire already had reviewed the -- pardon me -- the matter. From printout to the e-mail and an attached Word document, and from a review of e-mail account records, special agents of the FBI were able to determine that the e-mail had been sent last Thursday evening from a computer at the Library Media Technology Center at El Camino Community College.
Agents further determined that Mark Jakob, a former employee of Internet Wire who left the company in early August, had been a student at El Camino Community College during the summer. They also determined that he regularly used the college's Media Technology Center computers, and in fact he had been seen using the computers last Thursday evening.
Law enforcement then turned to Jakob's stock-trading records. Those records revealed that about two weeks ago, Jakob executed short sales of approximately 3,000 shares of Emulex stock at prices between $72 and $92 per share. During the following week, the price of Emulex stock rose to more than $100 per share. After the issuance of the false press release last Friday morning, defendant Jakob executed trades to cover his earlier short sales buying $3,000 shares of Emulex, yielding him a profit of $50,000.
Last Friday morning, defendant Jakob also purchased 3500 additional shares of Emulex on a margin account at a price of approximately $52 per share for a total expenditure of more than $180,000. Three days later he sold those shares for a profit more than $186,000. This United States Attorney's Office, working with the SEC and the FBI are committed to protecting investors in the marketplace in which they conduct their business.
Those who seek to destroy the integrity of the marketplace, and who seek to make illegal profit should understand that we will identify you and we will prosecute you. Anyone who would use the Internet to commit a crime should also understand one thing: Do not count on the anonymity of the Internet services shield for your illegal conduct. We in law enforcement can navigate the information superhighway just as we have had to and continue to beat the pavement to detect and apprehend criminals.
As technology advances, so do our investigative methods and our abilities to protect the public. With the swiftness of our action in this case, in less than one week, we have brought criminal charges. We have demonstrated our ability to take immediate and strong law enforcement action to protect our public.
I think Ms. Caproni of the SEC would like to say a few things.
Thank you, Alej.
VALERIE CAPRONI, SEC REGIONAL DIRECTOR: On August 25th, 2000, Mark Jakob perpetrated one of those devastating financial hoaxes yet committed in the Internet age. Unlike in previous similar cases, Jakob managed to get his false press release actually distributed by an Internet news service. That distribution was significantly widened less than an hour later when Bloomberg news service and other legitimate news organizations picked up the story and published it.
The effect on the market was immediate and it was dramatic. The share price of Emulex fell from 103 15/16, almost $104 a share at the time of the Bloomberg's publication, to $43 when trading was halted just 16 minutes later. During that time, 2.3 million shares traded hands. While untold numbers of shareholders lost money by selling during the period of the hoax, Mark Jakob profited widely, ultimately making almost a quarter-of-a-million dollars on his Emulex trades.
Almost immediately, he began to withdraw those elicit proceeds from his brokerage account. Within minutes of learning of the hoax, the Security and Exchange Commission began an investigation, coordinating closely with the Federal Bureau of Investigation and the U.S. Attorney's Office here in Los Angeles.
The coordinated investigation swiftly identified Jakob as a possible suspect. Over the next six days, the investigation continued, ultimately leading to the actions we are announcing today. As the press knows, this is the fourth Internet-perpetrated fraud in less than 18 months. In each case, PairGain, Bid.com and Lucent, the culprit was promptly identified by the SEC and criminal authorities.
Those out there who might -- who may be considering...
SHAW: We have been bringing you live coverage of an FBI and SEC news conference in Los Angeles. The FBI, U.S. -- or rather the U.S. attorney in Los Angeles announcing that Alejandro Mayorkas -- he's the attorney announcing that a suspect has been arrested in the phony press release last week.
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