Bloomberg Sues 5 People Involved in Internet Hoax

Bloomberg LP filed a lawsuit Monday against the unidentified people who posted and promoted a bogus report last week on the Internet that boosted the value of PairGain Technologies shares 31% before the hoax was exposed.

The lawsuit in U.S. District Court in Manhattan will help the global financial news service learn the identities behind the screen names of those who joined the scheme, said Richard L. Klein, a Bloomberg lawyer.

The lawsuit sought unspecified damages and a court order to prevent the defendants from engaging in counterfeiting again. The defendants were listed as John Does No. 1 through No. 5. Four of them had alias screen names.

Someone copied the Bloomberg page design and created a false news story that caused the dramatic increase Wednesday in the trading value of PairGain, a Tustin maker of telecommunications equipment.

The 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.

During the day, the value of PairGain stock rose as high as $11.13, from a closing price the day earlier of $8.50. After company officials disputed the report and the page was pulled from the Internet, the stock dropped to $9.38 on trading volume of 13.7 million shares, nearly seven times its usual volume of about 2 million shares.

Klein said Bloomberg does not know the identities or screen names of those who caused the bogus story to appear on Angelfire.com, the personal Web page site.

“We’ve issued subpoenas to the companies that sponsor the Web site where this phony story was posted and the discussion boards where messages were posted referring readers to the counterfeit page,” he said.

Angelfire.com is a subsidiary of Lycos Inc., one of the most popular destinations on the Web. It is being acquired by USA Networks.

The perpetrators of the hoax allegedly used message boards hosted by Yahoo Inc. to spread word of the bogus acquisition.