Re: 8/25/00 [EMLX] Reuters: Investors warned to do homework after Emulex hoax; Emulex hoax raises questions of Nasdaq rules; CBOE investigating Emulex options trade
Investors warned to do homework after Emulex hoax
By Emma-Kate Symons
NEW YORK, Aug 25 (Reuters) - The Emulex stock hoax was a wake-up call to giddy investors hooked on online information and electronic trading to do more research, think rationally and do their homework, market strategists, traders and company officials said on Friday.
Shares of Emulex Corp. (NASDAQ: EMLX) plummeted more than 50 percent after a phony press release said the company's chief executive had resigned and Emulex, a maker of network communication products, had been forced to restate earnings.
Some strategists called for extra safeguards on the Nasdaq and more careful vetting of Internet-sourced company data. But as Scott Bleier, chief investment strategist at Prime Charter said "if someone wants to break into your home they'll find a way, and if someone wants to commit fraud, they'll find a way."
The Emulex stock fraud recalled earlier celebrated examples of Internet trickery that burned investors and companies.
In 1999 a former employee at telecommunications equipment company PairGain Technologies Inc. pleaded guilty to posting a story on the Internet that said PairGain would be bought by an Israeli company in a billion-dollar deal.
The bogus story appeared on a Website made to look like one belonging to Bloomberg news, and it sent the stock soaring.
The Emulex hoax, however, was different, said Barry Hyman market strategist for Ehrenkrantz, King Nussbaum Inc.
"This is the first major story regarding manipulation, an Internet-based hoax," said Barry Hyman
"You have individuals that can get snookered by a Website," Hyman said.
"But this is something that was a false press release put together, there was unusual activity prior to the release and there was an intent to manipulate."
"I think it brings up to light that an investor shouldn't make decisions without doing research and trade or invest off headlines. You hopefully engage in more detailed research."
Hyman said he had "no emotions for people" who trade on limited information.
"Fortunately, these things are isolated and this is not the norm," Hyman said.
"But rational decision-making should be made more from a longer-term point of view. This is a wake-up call, maybe a gut check to say the Internet truly is a dangerous place and people can manipulate things very easily."
Bleier said the rapid investor reaction before the release was exposed as a fake highlighted "the risks of the new economy."
"It's part of the infancy of the new economy and the instantaneous ability to trade and get information - in return for that speed of dissemination comes the risk of false information," said Bleier.
"As time goes on and as more things happen there will be safeguards."
Emulex CEO and President Paul Folino cautioned investors to "do a little more homework" before they react.
siliconinvestor.com
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Emulex hoax raises questions of Nasdaq rules
NEW YORK, Aug 25 (Reuters) - The Nasdaq stock market's slow response to halt trading in network communication products maker Emulex Corp. (NASDAQ: EMLX) after a false news release sent the stock price down more than 50 percent on Friday calls into question Nasdaq's safeguards against such hoaxes.
Nasdaq's pride as a technologically advanced, "fluid market where stocks don't stop trading," may have contributed to its slow response, said Barry Hyman, market strategist for Ehrenkrantz, King Nussbaum.
The Emulex incident reveals flaws in its system.
"If this happened on the New York Stock Exchange there would still be an outcry," Hyman said. "The stock could very easily have stopped trading much quicker than on the Nasdaq. It seems to have created a problem with coordination of the electronic market."
A Nasdaq spokesman did not immediately return calls seeking comment.
The fake news release, put out on Web-based news dissemination service Internet Wire at 9:30 a.m. EDT (1330 GMT), said the company's chief executive had resigned and Emulex had been forced to restate 1998 and 1999 earnings, as well as revise the fourth quarter to a loss from a gain. The false release also said Emulex was under investigation by the Securities and Exchange Commission (SEC).
The false news was picked up by Bloomberg and Dow Jones news wires, which said they received the news from Internet Wire.
Emulex shares plummeted and were down 48-1/16 at 65 when they were halted for trade at about 10:30 a.m. (1430 GMT).
NYSE rules call for a stock to be halted when there is an order imbalance, either on the buy side or the sell side. The Exchange would also halt the stock if it saw unexpected news released about one of its listed companies. Companies are required to report material news to the NYSE 10 minutes before releasing it to the market.
Emulex's shares resumed trading at almost 1:30 p.m. (1730 GMT) following a statement by the company saying the release was a fake. The share closed down 7-5/16 at 105-3/4.
siliconinvestor.com
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CBOE investigating Emulex options trade
CHICAGO, Aug 25 (Reuters) - The Chicago Board Options Exchange said on Friday it is reviewing Friday's "unusual" trading activity in options on shares of data network equipment maker Emulex Corp.
Shares of the California-based company plummeted over 50 percent, but then recouped the bulk of losses on Friday after the company said it had been the victim of a hoax press release that said Emulex was restating earnings and that its chief executive had resigned.
"The unusual trading has triggered an intense investigation," said a CBOE spokesman in response to an inquiry.
The CBOE generates the bulk of volume in the option, which also is listed at the American Stock Exchange, Pacific Exchange and Philadelphia Stock Exchange. Typically, the options exchange with the biggest marketshare spearheads any review of options trading.
"The PHLX, we are looking into this," said spokeswoman Heidi Van Vooren in response to an inquiry.
"We will be fully cooperative with whatever investigations are undertaken," said a PCX spokesman.
An AMEX spokesman said the exchange does not comment as a matter of policy on the existence of any investigation.
"There was a floor broker trying to buy puts," said one CBOE trader of options activity just before a fictitious news release knocked the stock more than 50 percent lower.
"Apparently, there was some unusual trading on our floor this morning, which threw up some red flags as it always does over here," added another CBOE source.
The fictitious news release and the company's subsequent denial sent Emulex options into fast-market conditions as implied volatility at first spiked higher then settled back down again as the stock regained most losses.
siliconinvestor.com |
