BBC Homepage World Service Education
BBC Homepagelow graphics version | feedback | help
BBC News Online
 You are in: Business
Front Page 
UK Politics 
Market Data 
Your Money 
Business Basics 
Talking Point 
In Depth 

Friday, 1 September, 2000, 04:55 GMT 05:55 UK
FBI arrests man in shares hoax
Arrested: Mark Jakob is led away by the FBI
The FBI has arrested a man who allegedly carried out one of the most devastating financial frauds seen on the internet yet.

Last Friday, shares in data networking equipment maker Emulex plunged 60% following the issue of a false news release on the internet.

The press release claimed that the company's chief executive had resigned and that it had inflated its previous earnings. The arrested man is alleged to have made nearly $250,000 from the fraud.

At a press conference late on Thursday, the FBI and Securities and Exchange Commission (SEC) warned that it would crack down hard on perpetrators of fraud.

Faking it

The FBI said 23-year-old Mark Jakob had worked at Internet Wire, which distributed the fake press release.

Emulex is one of the world's largest suppliers of data networking equipment.

Its shares fell 60% on Friday, knocking $2.5bn off its market capitalisation.

Once it became clear the information was false, the shares recovered nearly all of their losses.

Mark Jakob is likely to have made money by placing a bet that the company share price would fall. This is a process known as short selling.

Emulex chief executive Paul Folino said: "I'm ecstatic about the way the federal authorities and the FBI have handled this. I think it's a message to everybody ... It's very difficult for people to get away with this kind of crime. Hopefully, it will reassure the markets when they invest [in small high-tech companies like Emulex]."

True or false

The incident renews concerns about the accuracy of information distributed via the internet.

Internet Wire, which has distributed press releases online for six years, said it received the press release from someone claiming to be with a public relations agency representing Emulex.

The fake press release carried the company's logo, a valid company contact name and telephone number.

The story was picked up by financial news organisations, including Bloomberg. This ensured that the news quickly spread around the New York based Nasdaq market, maximising its impact.

Emulex chief financial officer Michael Rockenbah said: "This is a double edged sword for the media because they have the obligation to disseminate information but also the obligation to make sure it is accurate."

Other companies have also seen their share prices manipulated by false information.

Shares in Lucent Technologies' stock fell 4% in March after a fake news release posted on an internet bulletin board said that Lucent would report lower earnings.

Search BBC News Online

Advanced search options
Launch console
See also:

25 Aug 00 | Business
Internet hoax hits Emulex
Internet links:

The BBC is not responsible for the content of external internet sites

Links to more Business stories are at the foot of the page.

E-mail this story to a friend

Links to more Business stories