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To: Victor who wrote (21196)	4/15/1999 9:00:00 PM
From: Thomas Kirwin	Read Replies (1) \| Respond to of 37507

Bogus Internet Report Nets Arrest Thursday April 15 8:11 PM ET By JOHN ANTCZAK Associated Press Writer LOS ANGELES (AP) - An employee of PairGain Technologies Inc. was arrested Thursday in North Carolina on securities fraud charges alleging he posted a fabricated financial news service report on the Internet that drove up the company's stock. Gary Dale Hoke, 25, was arrested at his Raleigh home after FBI agents tracked Internet addresses that were recorded despite an effort to access the Internet anonymously, according to U.S. attorney's office in Los Angeles. The April 7 hoax included a phony story about a corporate takeover made up to look like it was posted on the Bloomberg news service's Web site. It caused a dramatic increase in the stock value of PairGain, a Tustin, Calif., maker of telecommunications equipment. It was believed to be the first stock manipulation scheme employing a fraudulent Internet site, U.S. Attorney Alejandro N. Mayorkas said. Assistant U.S. Attorney Christopher Painter described Hoke as a middle level employee. After his arrest, Hoke was arraigned in North Carolina, ordered to report to a Los Angeles court at an unspecified date and released on $50,000 bond, Painter said. Painter said there was no allegation that any higher-ups in the company were involved and that the company was cooperating in the investigation. Charles McBrayer, senior vice president and chief financial officer of PairGain, said, ''We're disappointed and upset that the trail seemed to lead to one of our employees.'' Hoke, an employee since January 1997, accessed the Internet through a computer at PairGain's Raleigh facility, where he is an engineer, said McBrayer. PairGain has about 70 workers in Raleigh, where it makes equipment that allows phone companies to carry multiple calls over existing copper wiring. The complaint filed against Hoke late Wednesday in Los Angeles and unsealed Thursday charged that investors who paid the inflated price for PairGain were defrauded. The bogus report said PairGain would be acquired by an Israeli firm, ECI Telecom, for $1.35 billion, or about twice its market value at the time. On that day, the value of PairGain stock rose as high as $11.121/2 from a closing price the day earlier of $8.50. When it was determined that the story was fake, the stock price dropped, however it has since been fluctuating. On Thursday it fell $1.311/4 to $11.683/4. The complaint did not specifically allege that Hoke traded in PairGain stock on April 7, but an affidavit said Hoke has a history of trading securities online, and he traded PairGain stock as recently as January. The complaint names one victim of the hoax, a Santa Ana, Calif., investor who purchased 1,500 shares of PairGain stock after learning of the report. The complaint alleges Hoke used a free Web page service operated by Angelfire.com and a free e-mail service operated by Hotmail.com to create the scam. According to prosecutors, Hoke also allegedly posted a bogus e-mail message about PairGain under the subject line ''Buyout News'' on a financial news message board operated by Yahoo Inc. (Nasdaq:YHOO - news) The message contained a link to the bogus Bloomberg site. Mayorkas said the case was the first to result from a closer relationship between federal prosecutors and the Securities and Exchange Commission to protect investors. Securities fraud is punishable by up to 10 years in federal prison and a $1 million fine. On Monday, Bloomberg LP filed a lawsuit over the hoax in U.S. District Court in New York City. The lawsuit identified the defendants only as John Does and seeks unspecified damages. An attorney for Bloomberg said the suit would help the company learn the identities of those involved.