Defendant in Emulex stock hoax to plead guilty Posted at 6:35 p.m. PST Thursday, Dec. 28, 2000 LOS ANGELES (AP) -- A 23-year-old man will admit sabotaging the stock of Emulex Corp. with a phony press release and will face a near four-year jail sentence, according to a plea agreement that reveals he got the idea after an earlier financial windfall. Mark Simeon Jakob of El Segundo, Calif., was scheduled to plead guilty to two counts of securities fraud and one count of wire fraud in federal court Friday, the U.S. attorney's office and Jakob's attorney said Thursday. Jakob was arrested in August on charges of creating a hoax that sent the stock of Costa Mesa, Calif.-based Emulex plummeting as much as 62 percent in one day -- most of that in a 15-minute freefall. In exchange for Jakob's plea, authorities will drop the remaining counts against him and recommend a sentence of between 37 and 46 months. Jakob is also facing fines and an order to repay his victims, including investors who sold Emulex shares at huge losses based on the phony news report. Investor losses have been estimated at nearly $110 million. According to the agreement, Jakob began trading stocks in the summer of 1998 with a $40,000 stake, some of it borrowed. After some initial success, he lost most of the money day-trading -- a technique in which shares are bought and sold quickly, often in the same day. He started working at Internet Wire, a 6-year-old online distributor of press releases in April 1999 and soon saved enough money to once again trade stocks. In July of this year, Jakob sold short 3,000 shares of Extended Systems, an Idaho-based maker of wireless data management systems. A short sale involves selling borrowed shares of a stock in anticipation that the price will decline. Instead of falling, though, shares of Extended Systems rose, triggering a margin call -- a demand by the brokerage that Jakob deposit $33,000 in his account to cover anticipated losses. Jakob began buying shares of the company to cover his position. On the day he was required to deposit the money, the share price of Extended Systems plummeted after a legitimate press release from the company announced an anticipated decline in future earnings. Jakob was able to buy shares at a low price and made thousands of dollars in profit. The agreement does not say exactly how much Jakob made. About a month later, Jakob tried another short sale, this time of 3,000 shares of Emulex stock. Again, instead of the shares falling in value, they rose. On Aug. 24, Jakob faced a potential loss of $97,000 and a demand from an online brokerage that he deposit $20,000 in his account. To cover his losses, Jakob decided to craft a phony press release, modeled after the legitimate release that caused shares of Extended Systems to fall one month earlier, the plea agreement states. The release stated that the chief executive of Emulex Corp. had quit and the company was restating its quarterly earnings from a profit to a loss. A week after leaving Internet Wire on good terms, Jakob was able to use his knowledge of the online service's system to get the release distributed on Aug. 25. It was then redistributed by several news organizations. Within minutes, the share price plunged until trading was halted on the Nasdaq Stock Market. Jakob covered his short position and bought additional shares which he later sold. The government charges Jakob made more than $241,000 from his trades. On Aug. 25, Jakob went to the El Segundo branch of Washington Mutual Bank and asked to withdraw $71,000 that had been wired into his account by his broker. The assistant manager told Jakob there was only $50,000 in cash in the vault. Jakob walked out of the bank with a grocery bag filled with $50,000, mostly in $100 bills. Under the agreement, Jakob will be required to give that money to the government. A separate civil lawsuit brought against Jakob by the Securities and Exchange Commission, seeking the rest of the money Jakob allegedly made from his Emulex trades, is on hold until after the criminal charges are settled, Jakob's attorney, Joel Levine, said. In justifying the plea agreement, authorities are expected to present evidence in court Friday regarding Jakob's psychological history. Jakob's actions were an aberration from ``an otherwise ordinarily law abiding life,'' the plea agreement says. # # # --- Support our Sponsor------------------------------------- Make eTour.com your Web start page, and you’ll see a different site matched to your interests every time you log onto the Web! 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