Guilty Plea in Emulex Hoax
L O S A N G E L E S, Dec. 29, 2000 -- A 23-year-old man pleaded guilty today tosecurities and wire fraud for issuing a fake press release thatsabotaged the stock of the high-tech company Emulex Corp. and costinvestors nearly $110 million.
Mark Simeon Jakob entered the pleas before U.S. District JudgeDickran Tevrizian under an agreement with federal prosecutors. Thejudge accepted the pleas and set sentencing for March 26.
Under terms of the agreement Jakob surrendered $54,000 cash — awad of rubber band-wrapped bills brought to court in a relative’spurse.
The agreement for the guilty pleas to two counts of securitiesfraud and one of wire fraud was revealed Thursday by prosecutorsand Jakob’s attorney.
Lost Money While Day-Trading
Jakob, of El Segundo, was arrested in August on charges ofcreating a hoax that sent the stock of Costa Mesa-based Emulexplummeting as much as 62 percent in one day.
In exchange for his plea, authorities will recommend a sentenceof between 37 and 46 months. Jakob also faces fines and an order torepay his victims, including investors who sold Emulex shares athuge losses based on news reports prepared based on the bogusrelease.
According to the plea agreement, Jakob began trading stocks inthe summer of 1998 with a $40,000 stake, some of it borrowed. Aftersome initial success, he lost most of the money day-trading — atechnique in which shares are bought and sold quickly, often in thesame day.
He started working at Internet Wire, an online distributor ofpress releases, in April 1999 and soon saved enough money to tradeagain.
In August, Jakob sold short 3,000 shares of Emulex. A short saleinvolves selling borrowed shares of a stock in hopes the price willdecline, enabling an investor to repay the loan at a lower priceand keep the difference.
Knew Ins, Outs of Internet Wire
Instead of falling, though, shares of Emulex began to rise, andJakob faced a potential loss of $97,000 and a demand from an onlinebrokerage that he deposit $20,000 in his account to coveranticipated losses. To cover his losses, Jakob decided to craft aphony press release, modeled after a legitimate release that causedshares of Extended Systems to fall one month earlier, the pleaagreement states.
The release said that the chief executive of Emulex hadquit and the company was restating its quarterly earnings from aprofit to a loss.
Having left Internet Wire a week earlier on good terms, Jakobwas able to use his knowledge of the online service’s system to getthe release distributed on Aug. 25. It was then redistributed byseveral news organizations.
Within minutes, Emulex’s share price plunged until trading washalted on the Nasdaq. Jakob covered his short position and boughtadditional shares which he later sold.
SEC Seeks Rest of Money
The government charges Jakob made more than $241,000 from histrades.
As part of the plea agreement, Jakob was required to give$54,000 in profits recovered by investigators to the government.
A separate civil lawsuit brought against Jakob by the Securitiesand Exchange Commission, seeking the rest of the money Jakoballegedly made from his Emulex trades, is on hold until after thecriminal charges are settled, said Jakob’s attorney, Joel Levine.