Man Pleads Not Guilty in Emulex Stock Hoax Case
An El Segundo man pleaded not guilty Tuesday to perpetrating a news media hoax that sent shares of Emulex Corp. tumbling 62% in a single day in August.
Mark Simeon Jakob, 23, was ordered to return Nov. 21 to federal court in Los Angeles to stand trial on 11 counts of securities and wire fraud.
But whether he will actually go to trial remains a question.
Jakob’s lawyers said last week that they were pursuing “preliminary settlement discussions” with federal authorities to resolve the criminal case, as well as a civil suit brought against their client by the Securities and Exchange Commission.
Assistant U.S. Atty. Carl Moor declined to comment on any settlement talks, beyond telling reporters after Monday’s court hearing that “the ball is now in Mr. Jakob’s court.”
Moor described the government’s case against Jakob as straightforward and said it would take about a week to present it to a jury.
Jakob, accompanied by his criminal defense lawyer, Joel Levine, entered his plea without comment before U.S. Magistrate Ralph Zarefsky. He was allowed to remain free on $100,000 bail.
Levine refused to discuss any pretrial negotiations, saying he would not comment on matters related to defense strategy.
Authorities say Jakob orchestrated the dissemination of a derogatory news release that caused Emulex’s stock value to drop by $50 million within a few hours Aug. 25. Emulex, based in Costa Mesa, makes high-speed computer data storage devices.
Pretending to be an Emulex public relations representative, Jakob allegedly tricked a business news wire into sending out a bogus announcement that the company’s accounting practices were under SEC investigation, that it would restate earnings to show a big loss and that its president had quit.
Jakob engaged in a short sale transaction beforehand and bought Emulex stock as it began to rebound, grossing $241,000 in profits, according to a federal grand jury indictment. In a short sale a trader borrows shares from a broker and sells them, hoping they can later be repurchased at a lower price.
The FBI identified Jakob within hours as the likely suspect, but the damage was done. Many investors lost thousands of dollars in panic selling as Emulex stock dropped from $113 a share to less than $43. The stock price has since rebounded.
The episode raised concerns about the ease with which Wall Street could be manipulated in an age of instant mass communications.
Last week, another federal judge froze all but $30,000 of Jakob’s $428,000 portfolio at the SEC’s request. U.S. District Judge Virginia A. Phillips allowed Jakob to withdraw the $30,000 to pay his lawyers.
Jakob could face more than $600,000 in restitution, fines and penalties in the SEC lawsuit, plus a stiff prison sentence and more fines in the criminal case.
