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HOAX Press Release STUNS Wall Street
LOS ANGELES, Aug. 25 (UPI) -- Wall Street was rocked Friday when a false press release bearing dire news about Emulex Corporation caused the stock price of the high-flying fiber optics company to collapse amid panicked selling on the Nasdaq market. The hoax launched an investigation by federal authorities that will attempt to trace the source of the press release and determine if it was an attempt to damage Emulex or a manipulation of the stock price for their own gain. Officials at Emulex Corp. in Costa Mesa, California arrived at work Friday morning to find that their stock, which had closed at $113.06 on Thursday, careening toward a low of $43 as traders reacted to stunning news that the Securities Exchange Commission was investigating the company, the CEO was stepping down, and that earnings for the coming fourth quarter and the past two years were under review. The release was first disseminated by Internet Wire at around 9:30 a.m. EDT, and was then published by the widely read financial wire services Bloomberg and Dow Jones. "The negative statements in this fictitious press release are categorically false," Emulex CEO Paul Folino said in a statement. "Emulex has just completed an audit of our year-end results, which we announced on Aug. 3, and there is no truth to the rumor that our historical results will be restated." "We have contacted the appropriate authorities, who are investigating this matter and we intend to launch our own investigation into this fraudulent release," Folino added. Although the news was countered and trading on the stock suspended until 1:30 p.m. EDT, the damage had been done in the form of a 68-point drop that had some shareholders dumping their stock and others who bought short during the decline being blindsided when the stock reopened trading at $125 per share. "I shorted the stock at the market (value) when it was trading at $60, it was filled after about two or three minutes at $46, and then moments after that, trading was halted," Threasa Lynn Melton, an investor from Washington state told United Press International. "Just moments after the fill and the halt, there was a news flash on CNBC that it was all a hoax, but of course I was stuck until they opened the stock back up for trading to cover my short." Melton said she lost about $30,000 on the day's trades. It was not known how much money was involved overall in the trading, although some media reports estimated the amount that traded hands at some $2 billion; more than 11 million shares of the company's stock changed hands Friday. Nasdaq said Friday that it could not cancel Friday's Emulex trades due to Securities and Exchange Commission ruled, although some market players said it would be the right thing to do and would likely discourage such sabotage in the future. "If you robbed a bank, they would make you give the money back," a Manhattan Beach portfolio manager told UPI. The developing investigation into the money trail will likely look closely at those in the market who made money on Emulex Friday for any indications that they knew the price plunge was coming. Although a number of investors were hurt in the roller-coaster ride, the company's stock rebounded quickly to close at $105.75, down 7.31 on the day. There were, however, questions raised about the failure of the financial news services to confirm the report before sending it out to the traders who have been extremely edgy in recent months about bad news from high-tech companies. Internet Wire said it was contacted by telephone by a person claiming to be a public relations representative of Emulex "In our six year history, this is the only time that we have encountered such a situation," Internet Wire said in a release. "Each month, we issue thousands of press releases for private and public companies, and are recognized by the news media and investment community as a trusted and established news service for disseminating corporate news." The timing of the release was such that reporters on the East Coast were faced with the dilemma of holding on to news of potentially major importance to the investors who pay hefty prices for their services until Emulex officials arrived at their offices in California -- a time difference of three long hours that a perpetrator of the fraud may have counted on. Folino told CNBC that the fake release was dummied up to look like an Emulex release, although someone who had dealt with the company in the past would have noticed the difference. Wall Street traders found the developments disturbing in a market that is sensitive to bad news carried by financial information services and the mainstream media. "I don't know how one controls false information," Ted Weisberg, president of Seaport Securities, told CNBC. "Somebody clearly has done something they shouldn't have. One wonders why it doesn't happen more often." -- Copyright 2000 by United Press International. All rights reserved. --