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
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
"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
"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
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
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
"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.
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