PairGain Hoax Suspect Hit by Federal Lawsuit

Federal regulators filed a civil lawsuit Wednesday against a North Carolina man accused of perpetrating an elaborate hoax to manipulate the stock price of Tustin-based PairGain Technologies Inc.

The Securities and Exchange Commission is seeking unspecified damages against Gary D. Hoke, an employee of PairGain who allegedly created a fake Bloomberg News Service Web page to fool investors into thinking that PairGain was being acquired by an Israeli company.

PairGain’s stock surged 31% the morning of April 7, when the report was posted, then retreated after the report was exposed as a fake, the SEC said in the suit, which was filed in U.S. District Court in Los Angeles. The suit accuses Hoke of stock manipulation.

Hoke’s attorney, Samuel Currin, declined to comment.

Hoke, 25, of Raleigh, N.C., also faces a charge of criminal fraud, which carries a prison term of up to 10 years and a $1-million fine if he is convicted in what is believed to be the first stock manipulation scheme using a fraudulent Internet site.

Federal prosecutors have described Hoke as a mid-level engineer in electronics development at PairGain’s office in Raleigh. He was arraigned in North Carolina and released on $50,000 bond with orders to report to a federal court in Los Angeles at an unspecified date.

Prosecutors said there was no allegation that any PairGain executives were involved in the hoax. The company was cooperating in the investigation, prosecutors added.

Charles McBrayer, PairGain’s senior vice president and chief financial officer, said that Hoke, an employee since January 1997, allegedly accessed the Internet through a computer at PairGain’s facility in Raleigh.

The criminal charges filed last week against Hoke alleged that investors who paid the inflated price for PairGain stock were defrauded.

Prosecutors did not specifically allege that Hoke traded in PairGain stock April 7.

Shares of PairGain, which makes networking systems, fell 19 cents Wednesday to close at $10.69.