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...für "wir" ..genau lesen ! ------------- September 1, 2000 Investigators Arrest a Suspect in Stock Manipulation Case By ALEX BERENSON -------------------------------------------------------------------------------- The Associated Press Mark Jakob is accused of sending a fake press release about Emulex that depressed its share price. -------------------------------------------------------------------------------- GET QUOTES Look Up Symbol Portfolio| Stock Markets | Mutual Funds | Bonds | Currencies | Bank Rates | Industries Related Articles • Titan Sues to Block Damaging Anonymous Web Postings • Internet Wire to Turn Over Records in Fake Emulex Release Probe Audio •AP Business Report, Updated Twice Each Hour ADD YOUR THOUGHTS Emulex Fiasco Does the ease with which an individual influenced the share price of a billion dollar company make you more wary about your investments? -------------------------------------------------------------------------------- Add your thoughts and see what other readers are saying. Or ask your own question about Personal Finance, in Abuzz. -------------------------------------------------------------------------------- ark S. Jakob made a big bet in mid-August that Emulex shares would decline, federal prosecutors say. Instead, Emulex soared, leaving him with a paper loss of almost $100,000 in just a week. So Jakob, a 23-year-old former student at El Camino Community College in Torrance, Calif., took matters into his own hands, according to the government. On the evening of Aug. 24, he sent a fake press release by e-mail to Internet Wire, a Los Angeles service where he had previously worked, warning that Emulex`s chief executive had resigned and its earnings were overstated. The next morning, just as financial markets opened, Internet Wire distributed the damaging release to news organizations and Web sites. An hour later, shareholders in Emulex were $2.5 billion poorer. And Jakob would soon be $240,000 richer, said Alejandro N. Mayorkas, U.S. attorney for the Central District of California, which includes Los Angeles. FBI agents arrested Jakob on Thursday morning at the home he shares with his parents in a quiet neighborhood in El Segundo, a suburb of Los Angeles. Prosecutors charged him with one count of securities fraud and one count of wire fraud. If convicted, he faces 15 years in prison and a $500,000 fine. The Securities and Exchange Commission simultaneously filed a civil complaint against Jakob, seeking to freeze his assets and recoup what it calls illegal profits. The hoax, which temporarily roiled financial markets, was revealed within an hour of the first news report and Emulex stock recovered the same day. Still, investors who panicked and sold their shares or had sell orders automatically executed at preset prices are unlikely to recover their losses. Jakob did not have a lawyer at the time of his arrest and was represented by a public defender at his initial court appearance Thursday, according to a spokesman for the U.S. attorney`s office. He was being held in custody in Los Angeles and could not be reached for comment. A woman who answered the door and phone at his parents` house declined to comment. Jakob`s arrest is the third time in 18 months that law enforcement agencies have made a quick arrest in an Internet fraud that targeted a big company`s stock, illustrating yet again that the promise of anonymity on the Internet is largely an illusion. Because Web sites and servers that deliver e-mail carefully track the location of every visitor and message they get, police and prosecutors can track Internet users with relative ease unless the users take enormous care. "Anyone who would use the Internet to commit a crime should understand one thing -- do not count on the anonymity of the Internet to serve as a shield for your illegal conduct," Mayorkas said. "As technology advances, so do our investigative techniques and our abilities to protect the public." While the fake Emulex release was the most damaging, Lucent Technologies and PairGain also saw their stocks manipulated by fake releases. In both cases, prosecutors quickly found and charged the alleged perpetrators. Law enforcement officials said they are continuing to investigate the Emulex hoax and did not rule out the possibility of more arrests. Jakob, who had worked for Internet Wire for about a year, resigned on Aug. 18, and had been an employee in good standing, according to the company. But on Aug. 17 and 18, prosecutors say, Jakob sold 3,000 shares of Emulex short, betting that he would be able to buy the stock later at a lower price and pocket the difference as profit. Like a short sale, buying a put option is another way to profit from a stock price decline, and many Emulex puts were bought just before and just after the fake release was issued. Prosecutors did not claim that Jakob bought put options, leaving open the question of who did. Jakob`s arrest comes after an intense six-day investigation that began with the electronic trail left by the e-mail he sent Internet Wire, Mayorkas said. Within a few hours, FBI agents had tracked the e-mail to a computer library at El Camino Community College. The fact that the e-mail appeared to have been written by someone familiar with Internet Wire`s procedures offered another clue, and agents quickly made the connection between Jakob`s employment at Internet Wire and his enrollment at El Camino, where he was a student until earlier this month. By Monday, investigators had tightened their focus on Jakob and begun to examine records of his stock trading. They discovered his short sales, which took place at prices ranging from $72 to $92 on Aug. 17 and 18 through Datek Inc., the online brokerage firm. As Emulex stock soared, Jakob`s losses mounted, prosecutors said. But after Internet Wire distributed the press release, which was picked up by Bloomberg News and other news organizations, Emulex stock fell from $113 to $45, and Jakob "covered" his short by buying the 3,000 shares he had previously sold for a profit of $55,000. Minutes later, with Emulex stock still reeling from his fraud, he bought 3,500 more shares for just over $50 each, while he was at the Mandalay Bay Hotel in Las Vegas, prosecutors say. Late Monday, after the fraud had been discovered and Emulex stock had recovered, he sold those shares, pocketing an additional $186,000, prosecutors said. Jakob had actively traded Emulex for five months before his mid-August short sales, prosecutors said. "This is an example of the downside of day-trading," said Pamela Johnston, one of two assistant U.S. attorneys who investigated the case. "Someone can get themselves in a position where they are financially strapped." Kirk Roller, senior vice president of Emulex, said he was pleased with the arrest and hoped Jakob would face substantial penalties if convicted. "When you look at this kind of crime, it`s electronic terrorism," Roller said. "You`ve got to make an example of this person." Nancy Wernick, a neighbor of the Jakob family, said Jakob had a business refurbishing and selling used cars. In his personal profile for his America Online account, prosecutors say, Jakob lists Las Vegas, snowboarding, dancing and playing the stock market among his hobbies, and lists "let it ride" as his personal quote. http://www.nytimes.com/library/financial/090100emulex-plunge… |
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