Emulex Stock Hoax Was Triggered by E-Mail Release

The bogus press release that put Emulex Corp. shares into a free-fall Friday arrived via e-mail, giving federal investigators electronic clues to the perpetrator, the Los Angeles firm duped into distributing the phony news said Wednesday.

The electronic release, which purported to be from Emulex’s public relations agency, came with attachments that persuaded overnight staffers that day-shift employees had authorized the release, said Michael Terpin, chief executive of Internet Wire.

But Terpin would not say if the two employees had corresponded with the agency, a key that might enhance the FBI’s efforts to uncover those who concocted the hoax.

“We’re trying to find out how they became as familiar with our system as they were,” Terpin said. “I saw the e-mail. It was pretty compelling.”

Internet Wire has turned over server logs and other electronic records to help federal authorities track the perpetrator, he said. The company has altered its process for accepting releases to ensure that night-shift workers no longer make such decisions.

Emulex, a Costa Mesa firm that makes high-speed data storage products, saw its stock plunge as much as 62% in early trading Friday as shocked investors reacted to reports based on the fake release.

The release said that the company would restate its most recent quarter’s profit as a loss, that the Securities and Exchange Commission was investigating and that company Chief Executive Paul Folino had resigned.

In fact, Emulex’s executive corps was intact and its net income for the quarter surged to $9.6 million, more than tripling from the same period a year ago. Revenue doubled, reaching $40.8 million, the company said.

The company had been riding a swell of investor enthusiasm until the hoax sent a quake through the market. The jitters continued Wednesday as Emulex stock lost $2.56 to close at $100.50 a share.

The FBI’s computer-crime squad, the SEC, the Chicago Board Options Exchange and Nasdaq have opened investigations into the hoax. Securities-law experts and computer sleuths said that unless the cyber-scammers did something novel, the odds favor their capture.

“These guys never think they will get caught,” said Ira Lee Sorkin, former head of the SEC’s New York office and a partner in the New York law firm of Squadron, Ellenoff, Plesent & Sheinfeld LLP. “Greed and stupidity never go out of style.”

Since e-mail and the Internet were used in the hoax, Sorkin said he expects the SEC’s “CyberForce” to head the agency’s investigation. The squad has more than 200 investigators who monitor the Internet daily for signs of fraud, according to the agency’s Web site.

Investigators will try to trace the origin of the e-mail carrying the fake release by examining the so-called headers that show the path the message followed over the global computer network. Because all e-mails contain these electronic markings, committing an Internet crime and staying anonymous isn’t easy.

Smart crooks can make the investigators’ job harder by using a so-called Internet re-mailer or Web sites that send out e-mail anonymously, said Richard Smith, chief technology officer at the Privacy Foundation, a Denver agency that studies privacy and computer technology.

Even so, that’s not a foolproof way of hiding, he said.

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Bloomberg News contributed to this report.