The Emulex hoax, an instance of

securities fraud Securities fraud, also known as stock fraud and investment fraud, is a deceptive practice in the stock or commodities markets that induces investors to make purchase or sale decisions on the basis of false information, frequently resulting in los ...

, was perpetrated by 23-year-old Mark Jakob on August 24, 2000. Jakob, a former employee of the press release distribution service Internet Wire, was facing a loss of almost $100,000 as a result of short-selling stock in the

Emulex Corporation Emulex Corporation is a provider of computer network connectivity, monitoring and management hardware and software. The company's I/O connectivity offerings, including its line of Ethernet and Fibre Channel-based connectivity products, are or ...

, a fiber-optic equipment manufacturer. To cover his losses, Jakob wrote a fake release stating that Emulex's CEO had quit and the company was restating its quarterly earnings from a profit to a loss."Defendant in Emulex Hoax Sentenced"
Securities and Exchange Commission, Litigation Release No. 17094, August 8, 2001. Jakob then sent it to Internet Wire, posing as an Emulex publicist. The next morning, the phony release was picked up by

Bloomberg Television Bloomberg Television (on-air as Bloomberg) is an American-based pay television network focusing on business and capital market programming, owned by Bloomberg L.P. It is distributed globally, reaching over 310 million homes worldwide. It is head ...

and other news outlets. Emulex's stock price on the

NASDAQ The Nasdaq Stock Market () (National Association of Securities Dealers Automated Quotations Stock Market) is an American stock exchange based in New York City. It is the most active stock trading venue in the US by volume, and ranked second ...

stock exchange dropped from $103.94 to $43.00 in only 16 minutes of morning trading, losing $2.2 billion in

market capitalization Market capitalization, sometimes referred to as market cap, is the total value of a publicly traded company's outstanding common shares owned by stockholders. Market capitalization is equal to the market price per common share multiplied by t ...

. The press release was a fraudulent

short and distort "Short and distort" is a type of securities fraud in which investors short sell a stock and then spread negative rumors about the company in an attempt to drive down stock prices. It is often performed as a form of naked short selling in which s ...

stock manipulation. Bloomberg picked up Jakob's fake release at around 10:13 a.m., just as Emulex, headquartered in California, was opening its doors for the day, and the stock price fell 62% before Emulex found the fake release and asked the National Association of Securities Dealers to halt trading, which it did at 10:29 a.m. Once the release had been conclusively debunked, trading resumed on Emulex and the share price recovered almost immediately to close at $105.75. The

FBI The Federal Bureau of Investigation (FBI) is the domestic Intelligence agency, intelligence and Security agency, security service of the United States and its principal Federal law enforcement in the United States, federal law enforcement age ...

traced the release to Mark Jakob, who had realized a profit of more than $240,000 by

shorting In finance, being short in an asset means investing in such a way that the investor will profit if the value of the asset falls. This is the opposite of a more conventional "long" position, where the investor will profit if the value of the a ...

the stock. Jakob pled guilty and was sentenced to 44 months in prison, forfeiting the gains and owing an additional $103,000 in penalties. Jakob's fraud cost Emulex shareholders almost $110 million.

References

{{DEFAULTSORT:Emulex Hoax Finance fraud