INTERNATIONAL COVERAGE that is now WORLD WIDE!!
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IN TODAYS FINANCIAL TIMES( THE ORANGE ONE )
1. THE AMERICAS: Internet fraud at new level of cunning
THE AMERICAS: Internet fraud at new level of cunning
94% match; Financial Times ; 09-Apr-1999 03:14:45 am ; 501 words
The hunt continued yesterday for the people behind the most cunning internet investing scam yet, when a phony news story about the takeover of a small high-tech company sent its shares soaring in trading on Wednesday.
Regulators were tight-lipped about the investigation, but traders had little doubt that those responsible would be tracked down. "It definitely does take things to a new level," said Anthony Elgindy, president of Pacific Equity Investigations, a research and trading company.
The effectiveness of the scheme to move stock prices put a new light on the power of internet chat rooms, which often post anonymous stock tips and opinions. On Wednesday a fictitious Bloomberg news story appeared on a message board run by Yahoo! The story was made to look identical to a news story, and featured detailed links to the Bloomberg news service and other internet sites.
According to the false report, Pairgain Technologies, a California-based producer of telecoms equipment, had agreed to be acquired by ECI Telecom, an Israel-based company. The story appeared minutes before the opening of trading in New York, and the shares, which trade on the Nasdaq market, surged from an opening price of Dollars 8 1/2 to more than Dollars 11 in early trading.
The stock stayed strong in spite of denials from Pairgain and Bloomberg, closing at Dollars 9 3/8. Yahoo! quickly deleted the story, but by then it had spread to the broader market, making Pairgain shares the 12th most actively traded stock on the Nasdaq.
Although many investors were fooled by the story, others were doubtful from the start. Mr Elgindy posted a message on Silicon Investor, one of the most popular internet stock chat services, stating his belief that the original story was a fraud.
Mr Elgindy is a closely watched commentator on stock tips and is also an active trader. In a strange twist he said that after he posted his message he traded the stock, reaping a gain of Dollars 80,000-Dollars 100,000 on what he felt sure was false information.
Whoever posted the fictitious story knew Pairgain well. The company has long been considered a takeover candidate and has been linked with ECI in the past.
"That's part of the genius of what they did," said Charles McBrayer of Pairgain. Mr McBrayer said the company was not conducting an internal investigation, but was co-operating with regulators at the Securities and Exchange Commission and Nasdaq.
The Pairgain report may put new pressure on regulators to crack down on internet chat rooms. The SEC has repeatedly warned investors not to trade on information received on the internet, but this has done little to cool the thirst for fast tips.
In recent months the SEC has stepped up its enforcement of internet fraud, creating a new division within the agency.
The agency has brought more than 60 cases involving fraudulent internet practices.
This week US authorities charged a New Jersey man for creating and spreading the Melissa computer virus which jammed company e-mail systems worldwide.
Copyright © The Financial Times Limited
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