To: Jeffrey S. Mitchell who wrote (1141 ) 4/16/1999 7:22:00 AM From: dreamer Respond to of 4128
LOS ANGELES (AP) _ An employee of California-based PairGain Technology Inc. was arrested today in North Carolina on federal charges of fabricating a Bloomberg news service report and posting it on the Internet, driving up the company's stock. The FBI arrested Gary Dale Hoke, 25, at his Raleigh, N.C., home on charges of securities fraud for allegedly disseminating false information about the company, whose stock is publicly traded, the U.S. attorney's office in Los Angeles said. Hoke was arraigned in North Carolina, ordered to report to California at an unspecified date and released on $50,000 bond, said Assistant U.S. Attorney Christopher Painter. The prosecutor described Hoke as a middle- level employee. Securities fraud is punishable by up to 10 years in federal prison and a $1 million fine. The hoax was perpetrated by copying Bloomberg's Web page design and creating a false news story that on April 7 caused a dramatic increase in the trading value of PairGain, a Tustin, Calif., maker of telecommunications equipment. The bogus report said PairGain would be acquired by an Israeli company, ECI Telecom, for $1.35 billion, or about twice its market value at the time. During the day, the value of PairGain stock rose as high as $11.12{ from a closing price the day earlier of $8.50. When it was determined that the story was fake, the stock price dropped. Hoke was accused of creating the false report in a federal complaint filed late Wednesday in federal court and unsealed today. The complaint charges that investors who paid the inflated price for PairGain were defrauded. The government complaint does not specifically allege that Hoke traded in PairGain stock on April 7, but an affidavit said Hoke has a history of using online trading companies to purchase and sell securities, 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. The FBI used recorded Internet addresses to make the trace, the U.S. attorney's office said. 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. The message contained a link to the bogus Bloomberg site. This week, 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. _______________________________________