Re: 8/25/00 [EMLX] Reuters: Internet Wire duped by authors of fake release - CEO; Emulex hoax spotlights a matter of trust; Emulex says it was a victim of hoax press release
Internet Wire duped by authors of fake release - CEO
By Nicole Volpe
NEW YORK, Aug 25 (Reuters) - The unknown authors of the hoax press release that sent Emulex Corp. (NASDAQ: EMLX) shares down 50 percent on Friday convinced the late-night production staff of Internet Wire, which distributed the fake release, that they were working for Emulex, the chief executive of the Web based corporate news distributor said on Friday.
"Someone on the overnight shift was tricked by this person," Mike Terpin, chief executive of Internet Wire, said in a telephone interview Friday. "It was delivered via the Internet in such a way that production people were under the impression everything was followed correctly."
Internet Wire is an online rival to company news distributors PR Newswire and BusinessWire. Internet Wire issues thousands of releases a month for privately held and publicly traded companies.
The hoax release, which was then picked up by wire services Dow Jones and Bloomberg, said Emulex's chief executive had resigned and that Emulex had been forced to restate 1998 and 1999 earnings, as well as revise its fourth quarter to a loss from a gain.
It also said the Securities and Exchange Commission had launched an investigation into the company's accounting practices.
Emulex, which lost as much as $2.5 billion of its market capitalization as its shares plumetted, issued a statement saying, "The negative statements in this negative press release are categorically false."
Terpin said the perpetrator had somehow become familiar with Internet Wire's system and how it works.
"It was a bright person who was able to figure out our policies and procedures," said Terpin. "It wasn't someone hacking, it was not a security breach. It was an informational fraud."
He said he had been meeting all day with officials from the Federal Bureau of Investigation and Nasdaq to cooperate with their investigations.
"We're gonna do a top to bottom analysis of how this happened," he said. "Fortunately, when things like this are done using the Internet, it leaves behind all kinds of telling technological footprints."
While the fraud was perpetrated using the Web, Terpin pointed out that similar kinds of fraud have happened to other news distributors who do not send news online.
"But this does tell us the crooks are getting better," he said. "And the Internet is so immediate that most of us need to be more vigilent in writing and disseminating the news."
siliconinvestor.com
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Emulex hoax spotlights a matter of trust
By Ilaina Jonas
NEW YORK, Aug 25 (Reuters) - When several news agencies ran with a bogus press release that sent the stock of data networking equipment maker Emulex Corp. (NASDAQ: EMLX) plummeting more than 50 percent, it sent chills through the investment and journalism communities as well as the public at large.
The con-job once again raises the question of trust and how to quickly authenticate the origin of an official statement and verify news in an age where seconds mean millions.
On Friday morning, a press release, which appeared on Web-based news dissemination service Internet Wire, said Emulex'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. It also said Emulex was under investigation by the Securities and Exchange Commission (SEC).
Internet Wire confirmed that the release appeared on the service, but declined further comment pending a company statement.
The news was picked up by Bloomberg and Dow Jones news wires, which use Internet Wire as a source of news. The stock fell to 43 from a previous day's close of 113-1/16 but mostly recovered after the hoax was discovered. Still, shares of the Costa Mesa, Calif.-based company closed at 105-3/4, down 7-5/16 and were the second-greatest net losers on the Nasdaq behind SDL Inc. (NASDAQ: SDLI).
The issue is at the crux economy where information is king and the quality of it sets the extent of the reign. Electronic commerce depends upon verifying who is buying and who is selling and for what. Trading depends upon prices and what a buyer and seller will accept. Journalist, who issue information to the investment community and the public, depend upon the company issued press releases to inform the initial kernel's of information of a news event.
Daniel Savio, spokesman for Business Wire, a 40-year-old service that disseminates news, said its paying member companies, about 40,000 of them, are given a password that encrypts and authenticates the sender of the electronic mail containing a press release.
In the case of faxes, Business Wire staff members will call to verify the sender, he said.
"Internet wire, is just about one year old," Savio said. "Call it growing pains or getting to learn the flame is hot by getting burnt. We know where the pitfalls are...We've already gone through our learning curve."
Technologies such as authentication and encryption have sprung up in recent years. Authentication encompasses the area of digital certificates and digital signatures, which ensure a reader of the identity of a an e-mail or message.
"The technology is definitely there," said Bob Pratt, director of product marketing for VeriSign Inc. (NASDAQ: VRSN), which makes the "keys" that work to unlock the box of a message containing an author's identity. "The issue is getting people to use it. There's still a lot of people who believe things because they show up on Web sites."
Encryption shields digital information from tampering and also prevents a message being viewed or viewed before a set time.
"Encryption doesn't do anything to attest who the sender or recipient, said Ken Beer, product line manager for Tumbleweed Communications Corp.(NASDAQ: TMWD), which makes the software that supports security systems.
"It really protects the information as it goes across the Internet," said Steve Schick, spokesman for Internet security firm Check Point Software Technologies Ltd. (NASDAQ: CHKP).
Even if the sender is authenticated, that doesn't mean the information is accurate. In July, Business Wire's competitor, PRNewswire, distributed a press release from unknown Pegasus Capital of a proposal to take over AutoNation Inc. (NYSE: AN), the largest U.S. new car retailer. PRNewswire later withdrew the release after AutoNation said that the firm did not have the means to back up the proposal and was not legitimate.
siliconinvestor.com
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Emulex says it was a victim of hoax press release
By Nicole Volpe
NEW YORK, Aug 25 (Reuters) - Emulex Corp. (NASDAQ: EMLX) on Friday became the victim of one of the most far-reaching hoaxes to hit the U.S. stock market, causing the data networking equipment maker's stock to plummet more than 50 percent and triggering inquiries by the FBI and regulators.
A bogus press release, which appeared on Web-based news dissemination service Internet Wire, 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 hoax led to criticism of the Nasdaq stock market for failing to halt trading fast enough and calls for extra safeguards in the handling of corporate news. The speed and extent of the decline in the company's shares also showed how vulnerable companies have become to such hoaxes in the increasingly frenetic Internet-fueled stock trading environment.
Los Angeles-based Internet Wire said in a statement that whoever had written the bogus release had posed as a public relations representative of Emulex.
"For reasons presently unknown, it appears the hoax was perpetrated by an individual (or individuals) who falsely represented himself or herself as a public relations agency representing Emulex," Internet Wire said in a statement.
Emulex, alarmed that as much as $2.5 billion had been lopped off its market capitalization, moved to issue a statement clearing the matter up.
"The negative statements in this fictitious press release are categorically false," Emulex President and Chief Executive Paul Folino said in the statement. The company said that the bogus release used the Emulex name and logo.
The news was picked up by Bloomberg and Dow Jones news wires, which use Internet Wire as a source of news.
Shares plunged, and were down 48-1/16 at 65 when they were halted for trade at about 10:30 am EDT (1430 GMT), an hour after the opening of Nasdaq trading. Trade resumed around 1:30 pm and the shares regained most of the losses, eventually closing down 7-5/16 at 105-3/4.
"We are working with the SEC and Nasdaq surveillance to investigate who is responsible for this, because they used our company logo and name, and made it look like an Emulex release," said Kirk Roller, Emulex senior vice president of sales and marketing.
The SEC declined to comment and Nasdaq officials were not immediately available for comment.
A spokesman for the New York Office of the Federal Bureau of Investigation said two FBI offices were looking into the matter. "The Los Angeles FBI office and the New York FBI office are taking a look at this," said New York-based FBI spokesman Joseph Valiquette.
The Chicago Board Options Exchange said it was investigating "unusual" trading activity in Emulex options. "The unusual trading has triggered an intense investigation," said a CBOE spokesman in response to an inquiry.
The erroneous news was picked up in headlines and a story by Bloomberg and in headlines by Dow Jones Newswires, according to officials at both news companies.
Headlines are one line reports sent out to alert investors and traders of market-moving information, and are often written within seconds of when news is released.
"We looked at the Internet Wire press release and reported information from that release," said Dow Jones & Co. spokeswoman Vickee Adams, who added that the Dow Jones headlines came after the halt of trade. "The reporter followed up with a phone call to the company...and we reported that the news was in fact a hoax."
"We've removed the earlier headlines from the wire," she added.
Bloomberg spokeswoman Chris Taylor said the wire service was "evaluating Internet Wire as a source of information."
"We are concerned about always having our information being reliable," Taylor said.
"We carry Business Wire, PR Newswire and Internet Wire as contributors and they are on the Bloomberg System. We get the releases from them, they are the ones that guarantee the contents of the press release."
Analysts said the hoax also hit the share prices of other data networking equipment companies QLogic Corp. (NASDAQ: QLGC) and Brocade Communications Systems Inc. (NASDAQ: BRCD). QLogic closed down 5-13/16 at 103-7/8, after trading as low as 74 on Friday. Brocade closed down 6-7/17 at 211-7/8, after hitting a low of 206.
"If you were a long on either stock and jumped out on this supposed news you got murdered," said Bill Meehan, chief market analyst at Cantor Fitzgerald, who was referring to QLogic and Emulex.
"A lot of people are going to take a big loss. I have no idea who it is but I'm sure the government will be very interested in it," he added.
The Nasdaq's slow response to halt trading called some to question Nasdaq's safeguards against such hoaxes. "If this happened on the New York Stock Exchange, there would still be an outcry," said Barry Hyman, market strategist for Ehrenkrantz, King, Nussbaum.
Some observers said the rapid investor reaction before the hoax was exposed 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 news dissemination comes the risk of false information," said Scott Bleier, chief investment strategist at Prime Charter.
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