Emulex Stock Dips as Probe Advances
Wall Street took a small bite Monday out of Emulex Corp., even as federal authorities probed deeper into last week’s bogus news release that sent shares of the Costa Mesa maker of high-speed data storage products plunging.
Emulex shares dropped 5.9% Monday, losing $6.25 to close at $99.50 a share in Nasdaq trading.
In one of the more devastating hoaxes to hit the capital markets, a fake news release early Friday sent Emulex shares free-falling 62% until trading was halted. Word of the hoax quickly spread, and most of the damage had been repaired by the end of the day. Still, the stock lost more than 6% Friday.
The FBI, the Securities and Exchange Commission and Nasdaq have launched investigations into the hoax.
“The bad guys always leave a trail of evidence, and it’s our job to find that evidence and identify the perpetrators and bring them to justice,” said Ronald L. Iden, one of three FBI agents in charge of the Los Angeles field office.
No suspect has been arrested.
The FBI is probably tracking the source of the phony information, and the SEC is probably tracking which individuals may have profited most, said Eugene Goldman, former senior counsel to the SEC’s enforcement division.
Executives from Emulex and Internet Wire, the company that received the fictitious news release and distributed it over the Internet, said they were cooperating with authorities.
“These are criminal acts,” said Emulex Chief Financial Officer Mike Rockenbach.
Internet Wire’s chief executive, Mike Terpin, said the company had added an “extra layer” of verification Monday to prevent a recurrence of Friday’s incident. A supervisor will arrive at 2 a.m. to double-check news releases received overnight before the markets open.
The hoax was a blow to Emulex, whose share price had been strong since early August when the company posted record profit and revenue for the fourth quarter. The supplier of fiber-channel adapters boasts top-tier customers including Compaq Computer Corp., EMC Corp. and IBM Corp.
Net income for the quarter surged to $9.6 million, more than tripling from the same period a year ago. Revenue had doubled, reaching $40.8 million, the company said. Net income for the fiscal year climbed to $23.8 million, or 86 cents a share, up from $5.3 million, or 19 cents a share, for the previous year.
The release falsely said the company was under federal securities investigation, that it was revising quarterly earnings to show a loss and that its chief executive had resigned.
Goldman said regulators use a process known as “blue-sheeting” to find those who were trading in a stock in the days leading up to such a hoax. Harvey Goldschmid, a former SEC general counsel, said he expects any suspects would face aggressive prosecution.
“A lot of people lost money, unfairly and outrageously,” Goldschmid said.
*Times staff writer Josh Meyer contributed to this report.
