This Day In Market History: Short Seller Orchestrates Emulex Hoax

Each day, Benzinga takes a look back at a notable market-related moment that occurred on this date.

What Happened? On this day in 2000, Emulex lost $2.2 billion in market cap following a fraudulent press release by a short seller.

Where The Market Was: The Dow Jones Industrial Average closed at 11,192.63 and the S&P 500 traded at 1,506.45.

What Else Was Going On In The World? In 2000, Sony released the PlayStation 2 gaming console. The first crew ever to live on the International Space Station began their 136-day stay. The average U.S. income was $40,343.

Press Release Fraud: On Aug. 25, 2000, shares of fiber optic equipment manufacturer Emulex dropped from $103.94 down to $43 in just 16 minutes following a press release stating that Emulex’s CEO had resigned and the company would be restating its quarterly earnings from a profit to a loss.

The press release also stated the SEC was investigating the company.

Emulex’s market cap understandably shed $2.2 billion in value following the press release, which was covered by Bloomberg Television and other news outlets. Yet the press release was completely fabricated by former Emulex employee Mark Jakob. The 23-year-old had racked up nearly $100,000 in losses short selling Emulex stock and orchestrated the fraud in an attempt to cover his losses.

Jakob earned $240,000 in profit from the scheme, which became known as the Emulex Hoax. He was forced to forfeit those gains when the FBI traced the press release back to him. In 2001, Jakob pled guilty to securities and wire fraud and was sentenced to nearly four years in prison.