U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16671 / August 31, 2000
SECURITIES AND EXCHANGE COMMISSION v. MARK S. JAKOB, Civil Action No.
EDCV-00-687 VAP (Mcx) (C.D. Cal.)
The Securities and Exchange Commission ("Commission") announced that on
August 31, 2000, it filed a complaint against Mark S. Jakob ("Jakob")
of El Segundo, California, for perpetrating an Internet hoax six days
earlier. As a result of Jakob's scheme, in just 16 minutes, a Southern
California
high-tech company temporarily lost $2.2 billion in market value and
investors suffered millions of dollars of trading losses. The Commission's
complaint and documents filed in support of emergency relief allege:
Jakob, age 23, until recently was an employee of Internet Wire, Inc.,
a press release distribution company, and a student at El
Camino Community College.
On August 17 and 18, 2000, Jakob, expecting a decline in Emulex's
stock price, sold short 3,000 Emulex shares at an average price of
$80 per share. By August 24, 2000, however, Emulex stock had risen to
over $113 per share, resulting in Jakob's having unrealized losses of
over $97,000.
On the evening of August 24, 2000, Jakob, using an alias and
purporting to act on Emulex's behalf, used a personal computer at El
Camino Community College to send an e-mail instructing Internet Wire
to issue an attached press release for Emulex.
As instructed, on August 25, 2000, at 9:30 am EDT, Internet Wire
issued what purported to be an Emulex press release. The release
stated that the Commission was investigating Emulex's accounting
practices, that its CEO had resigned, and that it would revise its earnings
to report a loss instead of a profit. The release was a complete
hoax--Emulex did not issue, or authorize the issuance of, the release and
all of the statements in the release were false.
The false press release's effect on the market was swift and
dramatic. At 10:13 am EDT, a news service issued a headline containing
information from the false release. In the next 16 minutes, 2.3
million Emulex shares traded, and the price plummeted almost $61, resulting in
Emulex's losing $2.2 in market capitalization. At 10:29 am EDT,
NASDAQ halted trading after learning from Emulex that the release was
false. Emulex resumed trading later that day after the hoax was
discovered, and the price rebounded to close at $105.75.
On August 25, 2000, after the issuance of the false press release and
just before the trading halt, Jakob covered his short position, realizing a
profit of over $54,000. Minutes later, Jakob purchased 3,500 shares,
which he sold on August 28, 2000, at a profit of over $186,000. In
total, Jakob's profit from this hoax was over $241,000.
The Commission's complaint charges that Jakob's scheme violated the
antifraud provisions of Section 17(a) of the Securities Act of 1933 and
Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder. The Commission is seeking a temporary restraining order,
preliminary injunction and permanent injunction against future antifraud
violations, disgorgement with prejudgment interest, civil penalties, and an
order freezing assets, expediting discovery, and prohibiting the
destruction of documents.
In a related action, Jakob was arrested by agents from the Federal Bureau
of Investigation's Los Angeles field office and charged with securities and
wire fraud.
The Commission acknowledges the assistance of the Office of the United
States Attorney for the Central District of California, the Federal Bureau
of Investigation, and NASD Regulation, Inc. in the investigation of this matter. |
