Stock Trading Student Was An Employee at Internet Wire

What happens when a stock trading, 23 year-old student also happens to work at Internet Wire, a corporate news distribution service?

In the case of Emulex - disaster.

In the summer of 2000, Emulex commanded a valuation of $5 billion and was happily going about its business as a company.

All of a sudden, however, chaos broke out, as shares of the company fell 50% intraday after a wild piece of news was distributed via Internet Wire, a respected corporate news dissemination service.

Not only was Emulex going to have to restate its earnings, the press release said, but the CEO was also going to be leaving the company with immediate effect.

The stock immediately dove on the news.

The only problem? The news was fake.

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Mark Jakob was a student at El Camino Community College.

Jakob was infatuated with the stock market and talked about it all the time.

Jakob also happened to work at Internet Wire.

Jakob had shorted 3,000 shares of Emulex at a range of between $72-$92, which was a massive position for a college student.

Shares of Emulex rose to over $100, and Jakob was facing massive losses.

This is when he decided to use his job at Internet Wire to dig himself out of the hole that he was in.

Jakob went to a library at his college and used an anonymous email account to send an email to Internet Wire with the fake press release. Jakob's knowledge of Internet Wire and how it worked ensured that the press release would be taken and distributed widely.

In the press release, Jakob alleged that Emulex was having all manners of problems, and was dealing with fraud, restated earnings and executive departures.

Pretty much the worst things possible that a company can admit.

The press release was disseminated by Internet Wire, eventually halving the stock price of Emulex.

Jakob covered his 3,000 share short for a tidy $50,000 profit, and even bought an additional 3,500 shares at $52 a share.

All together, Jakob ended up making over $200,000 in profit.

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Authorities quickly zeroed in on Jakob, who didn't do a very good job of covering his tracks.

Authorities seized the computer that was used at the library of the college that he attended, and a computer forensics team was able to quickly determine that the fake press release had been sent from that computer.

Witnesses alleged that they had seen Jakob using the computer in question around the time that the press release was sent out.

Jakob was arrested and charged with multiple crimes, including wire fraud and securities fraud.

Jakob was eventually sentenced to 44 months in jail and was ordered to disgorge all of his ill-gotten profits.

Jakob also had to pay a civil penalty of over $100,000.


Filed under: General Knowledge