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Thursday September 28, 9:43 pm Eastern Time
Man Indicted in Emulex Fraud Case
By GARY GENTILE
AP Business Writer
LOS ANGELES (AP) -- A 23-year-old El Segundo, Calif., man was indicted by a federal grand jury Thursday on 11 counts of securities
and wire fraud in a scheme to defraud investors in a high-tech company.
Mark Jakob is accused of issuing a phony press release last month that sent the stock of Costa Mesa, Calif.-based Emulex (NasdaqNM:EMLX - news) plummeting as much as
62 percent in one day -- most of that in a 15-minute freefall. Federal authorities say Jakob needed the stock price to fall so he could buy back shares and cover a margin call
issued by his online brokerage firm.
The indictment charges that Jakob made more than $241,000 trading in Emulex stock. Jakob is facing a cumulative prison term of 100 years and cumulative fines of $9.5
million.
The Securities and Exchange Commission last month filed a civil complaint against him seeking repayment of all profits plus unspecified civil penalties. A federal court judge
has frozen about $400,000 in Jakob's bank and brokerage accounts at the request of the SEC. The judge also froze his personal documents, including his computer records.
The indictment charges that Jakob was facing a loss of $97,000 on Aug. 24 after selling short 3,000 shares of Emulex. Selling a stock short means selling shares borrowed
from a stock brokerage and replacing those shares later. A short seller is betting the stock price will decline.
Instead of declining, however, Emulex's stock rose. On Aug. 24, Jakob's online brokerage issued a ``margin call,'' requiring that the shares he borrowed be replaced
immediately.
According to authorities, Jakob fabricated a press release saying the president of Emulex would resign and that the company was under investigation.
The release was distributed over Internet Wire on Aug. 25, sending the stock price plummeting after news outlets such as Bloomberg and CBSMarketwatch published the
statement. Jakob had recently worked at Internet Wire, a Los Angeles company that distributes press releases.
Jakob covered his short position minutes before the Nasdaq stock market halted trading in the stock, the indictment alleges. Jakob bought back the 3,000 shares using a
computer in the business center at the Mandalay Bay Hotel and Casino in Las Vegas. He also bought additional shares of the stock and sold them at a profit after trading
resumed, authorities say.
The FBI quickly traced the e-mail account Jakob used to send the phony release back to a computer at El Camino College in Torrance, where Jakob had been a student. He
was arrested on the charges Aug. 31.
Besides general charges of wire and securities fraud, the indictment also lists separate counts on behalf of six investors from around the country who lost money by selling
Emulex shares. The indictment does not specify how much each victim lost. |
