Man Pleads Guilty in Stock Hoax

Mark Simeon Jakob, a former junior college student who caused Emulex Corp. investors to lose about $110 million in a stock fraud scheme, pleaded guilty Friday to federal fraud charges.

Jakob, 23, of El Segundo, admitted to arranging a fake Internet news release about the Costa Mesa high-tech firm on Aug. 25, prompting a 62% drop in the company’s stock price. Jakob took more than $241,000 in profits through the hoax, by trading shares during the stock’s wild price swings.

U.S. District Judge Dickran Tevrizian set sentencing for March 26. Jakob pleaded guilty to two counts of securities fraud and one count of wire fraud, and faces as much as 46 months in prison.

Jakob also agreed to pay $110 million in restitution. At the pleading, Jakob turned over $54,000 in cash, which authorities said were proceeds from the hoax.

While Jakob is not likely to be able to pay $110 million, federal law bars use of a person’s ability to pay as a factor in setting a restitution amount.

Jakob admitted to the hoax, saying he did it to recover $97,000 in paper losses he faced through Emulex shares he had “sold short,” betting the stock’s price would drop.

To prompt an Emulex price decline, Jakob e-mailed a fake company news release to Internet Wire, where he had recently worked. The news release stated that Emulex was restating prior profits as losses, that it was under investigation by the Securities Exchange Commission and that its chief executive had quit.

The bogus news was picked up by several news outlets, prompting a price dive within minutes as panicked investors sold the stock. Prices for shares in the firm, which makes high-speed data storage products, quickly recovered.