Emulex Recovers from Hoax
N E W Y O R K, Aug. 25, 2000 -- Emulex plunged 57 percent today because of what the company says was a hoax press release, but the stock recovered most its losses soon after reopening following Emulex’s efforts to set the record straight.
The stock reopened around 1:30 p.m., some three hours after the hoaxstarted showing up in financial news reports. The hoax temporarily wiped more than $2 billion off the stock’s market capitalization, leaving it at around $2 billion during the halt. But since reopening, Emulex — a California-based high-tech company that makes parts and software to help computers network — has regained most of its lost ground.
The release, which appeared on the Internet around the time of themarket’s opening bell, claimed Emulex would restate fourth-quarterearnings to swing to a loss from a profit, and that regulators wereprobing accounting irregularities. The release also claimed Emulexexecutives were stepping down. The company, based in California,vehemently denied the release.
Trying to Counteract the Hoax“It’s totally bogus,” said an Emulex spokeswoman. “None of the information is true. It’s business as usual.” The spokeswoman added that the company was in the process of composing a press release to that effect, and trying to track the source of the hoax through Nasdaqand the Securities and Exchange Commission.
Emulex said in a press release this afternoon that business remainsat “record levels” and that a just-completed audit of fiscal 2000 results showed no need for any restatement.
Emulex also said it “contacted the appropriate authorities, who areinvestigating this matter.” The company continued that it plans “tolaunch our own investigation into this fraudulent release.”
News Spread QuicklyThe false press release first appeared on Internet Wire, an Internet-based distributor of corporate news, at around 9:30 a.m. EDT.It was then distributed to a number of other news services, notablyBloomberg. The press release wasn’t distributed by the leadingbusiness press release disseminators, BusinessWire andPRNewsWire, and didn’t appear on one of the leading Net newsaggregators, Yahoo! Finance.
But around quarter after 10 a.m. in the East, price alerts detailing thestock’s drop — though not indicating any news — started popping up. Then, starting shortly after 10:30 a.m., leading news organizations such asDow Jones News Service, CBS Marketwatch and TheStreet.com ranheadlines on the release, detailing the supposed restatement, probeand executive departure news.
Nasdaq halted trading in the stock at 10:35 a.m. It wasn’t until around 11a.m. that Emulex’s disavowal of the release started making the roundsof the financial wires, Web sites and television channels.
Stock Shows Its VulnerabilityEmulex was certainly vulnerable to such a shock. The company makesfiber-channel peripherals that quicken the performance of networkstorage systems, and its position in the extremely hot storage andnetworking markets helped its stock put together a Qualcommian1999, gaining 1,025 percent.
But Emulex fell hard in April, plunging to 41 from 218 as investors grew leery of its towering valuation. Investors feared that the fiber-channel networking standard, on which the company’s products are built, was coming under fire from competing platforms like Internet protocol and gigabit ethernet.
But the stock had regained traction, running up as high as 113 beforetoday’s hoax. And even at its depressed pre-reopening levels today, sitting back around its lows of 2000, Emulex was hardly cheap. Its P/Ewas just above 130.
Others AffectedShares of network-card maker QLogic, which was spun off from Emulex in 1992 and is now independent, also took a dive this morning.
“Someone’s going to jail,” said Todd Clark, head of listed trading at W.R. Hambrecht. “I’m glad we don’t own it. “How do they resolve this?” the trader continued. “Do you break all the trades? What do you do?”
“It’s scary that a rumor that effective can get floated,” said Tony Cecin, manager of Nasdaq trading at U.S. Bancorp Piper Jaffray. “This isn’t going to go away fast. The market cap swing is in the billions.”