Plea Bargain For Emulex Hoaxster
A 23-year-old college student accused of making $241,000 by issuing a phony press release that sent high-tech company Emulex's stock plummeting pleaded guilty Friday and could get nearly four years in prison.
Mark Simeon Jakob pleaded guilty to three counts of fraud in U.S. District Court in Los Angeles.
Under the plea bargain, he also surrendered $54,000 in cash — a wad of bills with a rubber band around them, brought to court in a relative's purse.
In exchange for Jakob's plea, prosecutors dropped the remaining charges, which carried a maximum penalty of 25 years in prison, and agreed to recommend 37 to 46 months in prison at sentencing March 26.
Jakob also may be fined and ordered to repay investors, whose losses have been estimated at nearly $110 million.
Jakob allegedly staged the hoax by sending a false press release about Emulex to the Internet Wire news release dissemination service.
"The guilty pleas to be entered in this case (will) vindicate the federal government's effort to punish the breadth of Jakob's criminal activity, including his own profit-taking, his victimization of investors and his manipulation of the stock market," said U.S. Attorney Alejandro Mayorkas.
Authorities say Jakob began trading stocks in the summer of 1998 with a $40,000 stake, some of it borrowed. After some initial success, he lost most of the money day-trading — a technique in which shares are bought and sold quickly, often in the same day.
He started working at Internet Wire, a 6-year-old online distributor of press releases in April 1999 and soon saved enough money to resume activity in the stock market.
Prosecutors say that in the weeks leading up to the hoax, Jakob played the market in Emulex stock and stood to lose almost $100,000 unless its price dropped fast.
Authorities say he made that happen by sending an e-mail to Internet Wire, pretending to be from Emulex and saying that the data networking equipment company was under investigation by the Securities and Exchange Commission and would restate its earnings.
Internet Wire, believing the release to be genuine, then filed it, where it was picked up by several major financial news services, including Bloomberg and Dow Jones. Reuters did not issue the release.
The false news of the firm's dire financial straits sent investors into a panic, plunging Emulex's market capitalization by $2.5 billion in a matter of minutes, cutting the stock price by nearly half.
Authorities arrested Jakob after tracing the e-mail to a college that Jakob attended and learning that he had been seen there the night before the release.
Emulex shares have rallied since the hoax and closed on Thursday on the Nasdaq at $85¼, up more than 60 percent from where they closed on Aug. 25, the day the e-mail was sent.
The apprehension of Jakob followed the arrest in March of a securities day trader for allegedly posting a bogus press release on the Internet about telecomunications giant Lucent Technologies Inc. That false report led to a 3.6 percent decline in the company's stock.
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