Anthony,
Here is a copy of the NY Times regarding Pairgain and you--9th paragraph.
nytimes.com
Fake Internet News Account Sends a Stock
Price Soaring
By EDWARD WYATT
One of Wall Street's oldest frauds has been updated for the Internet
age.
Using a personal World Wide Web site intended to look like an Internet
page of Bloomberg News, someone posted a fake report early
Wednesday that said an American technology company called Pairgain
Technologies Inc. was being taken over by an Israeli rival for a hefty
price. The report spread to a Yahoo message board and then to other
sites frequented by stock traders, who quickly bid up Pairgain's stock by
more than 30 percent.
By midday, the stock retreated as the takeover report was debunked,
but it still finished the session as the 12th most heavily traded issue on
Nasdaq, ahead of such popular ones as Amazon.com and E*trade
Group.
The hoax, which is under investigation by the Securities and Exchange
Commission and Nasdaq officials, shows the startling influence of
Internet chat rooms and the power of day traders, who can easily move
the price of relatively small stocks with their trades.
Investors who were duped into buying shares at the temporarily inflated
price have suffered at least paper losses, though it could be weeks before
regulators are able to sort out who was trading.
Bloomberg said the article was not the work of any of its reporters, and
as of last night, the prankster had not been identified.
Pairgain, a Tustin, Calif., maker of telecommunications equipment, and its
reputed suitor, ECI Telecom Ltd., denied being in merger talks.
False rumors about a company have percolated as long as markets have
existed, and prank announcements of takeovers have occurred during
times of intense interest in the stock market, like the late 1980's, when
corporate raiders garnered headlines. But analysts called the Pairgain
story -- which made generous use of the scrolling text, Web links and
icons familiar to Internet users -- one of the most sophisticated examples
of such fraud in years.
Anthony Elgindy, an online stock
trader who operates Pacific Equity
Investigations, a stock research
service, called the fake report
"incredibly believable."
"It was detailed enough -- with
quotations and remarks and
attributions -- that it reads as if it
came from a press release that the company wrote," he said.
The fraud was well orchestrated. The posting appeared on the Internet
just a half-hour before trading began on the Nasdaq market, leaving little
time for anyone to check with the companies but enough for investors to
place orders to buy shares.
It started at 8:55 A.M.on Angelfire.com, a Web site operated by Lycos
Inc., which lets individuals create their own Web pages. The report first
appeared not on a message board or in a chat room, but on a personal
page that could have been created by any registered Angelfire user. The
report, carrying the Bloomberg.com logo, said that ECI had agreed to
buy Pairgain for $1.35 billion in cash, twice Pairgain's market value just a
day earlier.
How the news traveled to broader investment circles on the Internet is
not yet clear. But roughly a half-hour later, a reference to the Angelfire
posting and a link to the page appeared on a Yahoo message board
devoted to investment topics, which was quickly followed by postings on
other Internet sites.
"Wahooooo!!! I knew this day would come!," wrote one enthusiastic
investor on the Yahoo message board for Pairgain, minutes after word of
the "takeover" appeared. Another calculated a takeover price of $19 a
share, quite a jump from the Pairgain closing price of $8.50 on Tuesday.
A third noted that Pairgain's products, which allow for high-speed
transmission of data over traditional copper wires, "will 'pair' well" with
ECI's products for digital communications.
Once stock trading began, Pairgain shares rose sharply on heavy volume,
peaking at $11.125.
At the end of the day, Pairgain was priced at $9.375, up 10 percent from
Tuesday's close. And nearly 13.7 million Pairgain shares changed hands
in one day, roughly 13 times the average daily volume.
The stock began to retreat as Internet investors began to question the
report and fell further after Pairgain and ECI denied reaching a deal or
even being in talks.
The fake announcement seemed to confirm what had been rumored for
months. Charles McBrayer, Pairgain's chief financial officer, said similar
rumors have cropped up four times in the last year. In addition, two
Israeli newspapers reported last month that ECI was in talks to acquire
an American technology company, possibly Pairgain.
"The Internet should be helpful to individual investors," McBrayer said.
"But in this case, the fakery was done so well that it looked little different
than if the news came from a legitimate source."
Signs of fraud, however, were picked up by amateur sleuths who scan
many online chat rooms for signs of misbegotten investment hype. Shortly
after 10 A.M., one Yahoo participant noted that the Web page
announcing the takeover was not in fact part of Bloomberg's larger Web
site, and the real Bloomberg site carried no word of the takeover news.
Another chipped in that a taped message at Pairgain's investor relations
phone number, which would review news about the company, did not
mention that there would be a major announcement.
S.E.C. and Nasdaq officials declined to comment on whether they were
investigating the hoax; as a practice, they rarely comment on
investigations. But McBrayer said he had talked with officials from the
S.E.C.'s Internet fraud division, as well as Nasdaq's market surveillance
staff, both of which, he said, were looking into the incident.
Brian Payea, a spokesman for Lycos, said the company had not yet been
reached by regulators. He declined to identify the individual who created
the fake Web site, saying it was company policy not to release
information on members unless compelled by legal authorities.
Angelfire said it removed the posting early yesterday afternoon after it
was reached by Bloomberg's lawyers.
Chris Taylor, a spokeswoman for Bloomberg L.P., said the news
service's own computers were not involved in the hoax.
Virtually anyone with Internet access can save an image from a particular
Web page and then, using that template, insert their own text to create an
authentic-looking but fraudulent Web page. In fact, Angelfire removes
several pages a day from its site created by users who have misused the
copyrighted material of other sites, Payea said.
In many ways, the hoax was an old tale in a new guise. In recent years,
the markets and news services have been occasionally duped by false
reports that seemed authentic.
In 1989, a caller to the Nasdaq market's market surveillance unit
identified himself as the chief financial officer of Sybase Inc. and asked
that the company's stock be halted for a pending news announcement.
Trading was halted for more than a half-hour before Nasdaq officials
determined the call was a hoax.
In 1989, the stocks of NWA, parent of Northwest Airlines, and Pan Am
were halted in trading on the New York Stock Exchange after the
Reuters news service reported on a fake takeover bid for both
companies.
And in 1987, a financial adviser from a prominent Cincinnati family called
the Dow Jones News Service and announced a takeover bid for Dayton
Hudson, the Midwestern retailer, which the news service reported. The
bid was later determined to be a hoax, and regulators brought charges of
fraud against the adviser, in 1989 barring him from the securities
business.
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