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Emulex Hoax Perpetrator to Pay $350,000 to Victims

July 25, 2001|KAREN ALEXANDER | TIMES STAFF WRITER

The former community college student whose phony news release sent Emulex Corp. shares into a brief free fall last year has agreed to pay more than $350,000 to his victims--a fraction of what they lost--the Securities and Exchange Commission said Tuesday.

Mark Simeon Jakob, 24, of El Segundo pleaded guilty in December to federal fraud charges after admitting he arranged a fake Internet news release about the Costa Mesa high-speed data storage company Aug. 24.

When the news release was picked up by various media outlets the next morning, the stock dropped 62%--a loss of $2.2 billion in market capitalization--before rebounding. Investors may have lost as much as $110 million in the chaotic aftermath.

In settling an SEC civil lawsuit, Jakob agreed to pay back about $241,000 in profit from the scheme. He also agreed to pay $97,000, the amount equal to trading losses that he avoided through the hoax, plus interest. A federal judge also has ordered Jakob to pay a civil penalty of $102,642.

The money will be taken from accounts frozen by authorities after Jakob's arrest, and it represents the vast majority of his worth, SEC officials said. In an unusual twist, the funds will be held by the court and paid to defrauded investors if a pending civil lawsuit filed in U.S. District Court in New York is resolved in their favor, the SEC said.

"The commission did absolutely everything it could to get as much money back to the victims as possible in this matter," said Cliff Hyatt, the SEC's deputy assistant regional director for enforcement in Los Angeles.

Still, the money represents "a drop in the bucket compared to what people lost," said Andrew Schatz, one of the attorneys representing the investors in their lawsuit.

Emulex Chief Executive Paul Folino said he was disappointed that shareholders are not going to recover most of the $110 million they lost.

"But I'm told this is everything Mark Jakob has, and I'm pleased about that," Folino said.

Emulex shares tumbled after the phony release said there were serious problems at the company and said its earnings were being restated, the company's chief executive had quit and the SEC was investigating. The stock recouped most of its losses by the end of the day.

Jakob said he perpetrated the hoax to try to recoup his losses from having "sold short," betting that the stock would go down.

He faces up to 46 months in prison in the criminal case. Sentencing is scheduled for Aug. 6.

As part of his guilty plea, Jakob agreed to pay more than $100 million in restitution to victims, but experts say investors have virtually no chance of collecting.

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