Emulex Investors’ Suit on Fake Story Rejected

A judge Thursday tossed out a shareholder lawsuit against Bloomberg and Internet Wire Inc., saying they were not to blame for relying on a fake news release to publish a story that caused dramatic moves in the stock of Costa Mesa-based Emulex Corp.

U.S. District Judge Milton Pollack concluded that Bloomberg and Internet Wire were victims of a plot by former Internet Wire employee Mark Simeon Jakob to benefit from the sudden move in price.

The Manhattan judge said even the lawsuit filed by Emulex shareholders “reveals that defendants were used as unwitting dupes by Jakob,” who made money by selling the stock short.

“This does not give rise to a securities fraud claim against them,” the judge said.

A lawyer for the shareholders, Jeffrey Nobel, said attorneys are studying the ruling.

“We strongly believe that we have properly alleged claims against Bloomberg and Internet Wire under the federal securities laws despite the ruling,” Nobel said. “We haven’t made a decision of what our next step will be.”

The judge said Jakob benefited in the scam from his knowledge of Internet Wire, an online distributor of news releases, where he had worked until a week before he put out the fake release.

Jakob, in a release distributed over Internet Wire on Aug. 25, reported serious problems at Emulex and said its earnings were being restated, the company’s chief executive had quit and the Securities and Exchange Commission was investigating.

Shares of Emulex fell from $113 to $43 a share after the release went out, a loss of $2.2 billion in market capitalization and a loss of $1.1 million to Emulex investors.

Jakob, of El Segundo, was arrested in August and charged with securities and wire fraud. He pleaded guilty Dec. 28. Sentencing was set for Monday in U.S. District Court in Los Angeles.

A message left Thursday with Emulex, a maker of fiber-optic equipment, was not immediately returned.

Internet Wire lawyer Robert Perrin said the lawsuit “was simply ridiculous under the circumstances.”

“The judge did the right thing,” Perrin said. “Internet Wire, like Bloomberg and everybody else, was a victim of a fraud here. Under federal securities law, there clearly is no liability.”

Bloomberg lawyer Richard Klein said, “We’re gratified that the court agreed with our position that there is no basis for any claim against Bloomberg for its coverage of a breaking news event.”