Litigation Release No. 17079 / July 25, 2001
SECURITIES AND EXCHANGE COMMISSION v. MARK S. JAKOB, Civil Action No. EDCV-00-687 VAP (Mcx) (C.D. Cal.)
SEC SETTLES CASE AGAINST DEFENDANT IN EMULEX HOAX
The Securities and Exchange Commission announced today that a federal judge has entered an order settling its civil lawsuit against Mark S. Jakob ("Jakob"), the defendant in the Emulex stock hoax. According to the order, Jakob, 24, of El Segundo, California, will disgorge all of his gains from his scheme, approximately $241,000, plus an amount equal to the trading losses he avoided by his hoax, about $97,000, plus interest, totaling approximately $353,000. These funds will be held by the court and be paid to the defrauded investors in a pending private class action that has been filed in federal court in New York State if that case is resolved in the plaintiff's favor. In addition, the court has ordered Jakob to pay a civil penalty of $102,642. Both the disgorgement amount and the civil penalty will be paid from funds that have either been frozen in the Commission's civil action or turned over to the court by Jakob in a related criminal proceeding. The court also entered an injunction against Jakob prohibiting him from violating the antifraud provisions of the federal securities laws in the future, specifically, Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Jakob consented to the court order without admitting or denying the allegations in the Commission's complaint.
The Commission's complaint alleged, that on August 24, 2000, Jakob, utilizing an alias and purporting to act on Emulex's behalf, used a personal computer at El Camino Community College to send an e-mail message instructing his former employer, Internet Wire, Inc., to issue the attached press release. The attached press release pretended to come from Emulex and falsely stated that the SEC was investigating the Costa Mesa high-tech firm, that the company's CEO had resigned and that the firm was revising and lowering its earnings for the proceeding quarter. The next day, on August 25, 2000, several news organizations republished the press release. In a 16-minute period following the republication of the fake press release, 2.3 million shares of Emulex stock were traded and the price plummeted almost $61.00, from $103.94 to $43.00, resulting in Emulex losing $2.2 billion in market capitalization. Following a trading halt by Nasdaq, Emulex resumed trading later that day, after the hoax was discovered, and the price rebounded to close at $105.75.
In the related criminal matter, on December 29, 2000, Jakob pleaded guilty to two counts of securities fraud and one count of wire fraud. Jakob also agreed to pay more than $100 million in restitution to the victims of his scheme. Jakob's sentencing is scheduled for August 6, 2001.