securities fraud
Securities fraud, also known as stock fraud and investment fraud, is a deceptive practice in the stock or commodities markets that induces investors to make purchase or sale decisions on the basis of false information. Jakob realized a profit of more than $240,000 by
shorting
In finance, being short in an asset means investing in such a way that the investor will profit if the market value of the asset falls. This is the opposite of the more common long position, where the investor will profit if the market value ...
the stock but was arrested within a week by the FBI and sentenced to 44 months in prison.
Los Angeles
Los Angeles, often referred to by its initials L.A., is the List of municipalities in California, most populous city in the U.S. state of California, and the commercial, Financial District, Los Angeles, financial, and Culture of Los Angeles, ...
area, began working at the
press release
A press release (also known as a media release) is an official statement delivered to members of the news media for the purpose of providing new information, creating an official statement, or making an announcement directed for public releas ...
distribution service Internet Wire in mid-1999, staying at the company for about a year. On the side, he was said to have refurbished used cars. On his
AOL
AOL (formerly a company known as AOL Inc. and originally known as America Online) is an American web portal and online service provider based in New York City, and a brand marketed by Yahoo! Inc.
The service traces its history to an online ...
profile he listed the personal quote "let it ride" and hobbies including
Las Vegas
Las Vegas, colloquially referred to as Vegas, is the most populous city in the U.S. state of Nevada and the county seat of Clark County. The Las Vegas Valley metropolitan area is the largest within the greater Mojave Desert, and second-l ...
,
snowboarding
Snowboarding is a recreational and competitive activity that involves descending a snow-covered surface while standing on a snowboard that is almost always attached to a rider's feet. It features in the Winter Olympic Games and Winter Paralym ...
, and
day trading
Day trading is a form of speculation in Security (finance), securities in which a Trader (finance), trader buys and sells a financial instrument within the same trading day. This means that that all Position (finance), positions are closed befor ...
. He traded stocks of Emulex for five months before the hoax.
Jakob was resigned on August 18, 2000 as an employee in good standing. The previous day he sold 3000 Emulex shares, betting that the stock price would go down, allowing him to re-purchase the shares for a lower price and keeping a profit. However, as share prices climbed above $100, Jakob faced a loss of almost $100,000 as a result of short-selling stock in the Emulex Corporation, a fiber-optic equipment manufacturer.
Hoax
To cover his losses, Jakob wrote a fake release stating that Emulex had restated its quarterly earnings to change the company's reported profit to a loss, and that Emulex CEO had stepped down."Defendant in Emulex Hoax Sentenced" Securities and Exchange Commission, Litigation Release No. 17094, August 8, 2001. He sent it to Internet Wire, posing as an Emulex publicist using using a Yahoo-based email address that had been registered just minutes earlier from a computer at the El Camino Community College library.
The next morning, the phony release was picked up by
Bloomberg Television
Bloomberg Television (on-air as Bloomberg) is an American-based pay television network focusing on business and capital market programming, owned by diversified information and media private company Bloomberg L.P. It is distributed globally, re ...
and other news outlets. Emulex's stock price on the
NASDAQ
The Nasdaq Stock Market (; National Association of Securities Dealers Automated Quotations) is an American stock exchange based in New York City. It is the most active stock trading venue in the U.S. by volume, and ranked second on the list ...
stock exchange dropped from $103.94 to $43.00 in 16 minutes of morning trading, losing $2.2 billion in
market capitalization
Market capitalization, sometimes referred to as market cap, is the total value of a publicly traded company's outstanding common shares owned by stockholders.
Market capitalization is equal to the market price per common share multiplied by ...
. Jakob used a computer at the Mandalay Bay Hotel in Las Vegas to re-purchase the 3000 shares he had previously sold and had $55,000 left over as profit. He then bought an additional 3500 shares for about $50 several minutes later, which he sold three days later for a $186,000 profit. The hoax was revealed within an hour, and the Emulex stock quickly returned to its approximate pre-hoax price.
The press release was a fraudulent
short and distort
"Short and distort" is a type of securities fraud in which investors short sell a stock and then spread negative rumors about the company in an attempt to drive down stock prices.
It is often performed as a form of naked short selling in which st ...
stock manipulation
In economics and finance, market manipulation occurs when someone intentionally alters the supply or demand of a security to influence its price. This can involve spreading misleading information, executing misleading trades, or manipulating ...
. Bloomberg picked up Jakob's fake release at around 10:13 a.m., just as Emulex, headquartered in California, was opening its doors for the day, and the stock price fell 62% before Emulex found the fake release and asked the
National Association of Securities Dealers
The Financial Industry Regulatory Authority (FINRA) is a private American corporation that acts as a self-regulatory organization (SRO) that regulates member brokerage firms and exchange markets. FINRA is the successor to the National Associati ...
to halt trading, which it did at 10:29 a.m. Once the release had been conclusively debunked, trading resumed on Emulex and the share price recovered almost immediately to close at $105.75.
Arrest and aftermath
Emulex senior vice president Kirk Roller called for substantial penalties, saying "When you look at this kind of crime, it's electronic terrorism". After a six-day investigation, FBI agents and a federal prosecutor arrested Jakob on August 31 at the El Segundo, California home he shared with his parents. He was charged with one count of
wire fraud
Mail fraud and wire fraud are terms used in the United States to describe the use of a physical (e.g., the U.S. Postal Service) or electronic (e.g., a phone, a telegram, a fax, or the Internet) mail system to defraud another, and are U.S. fede ...
and one count of
securities fraud
Securities fraud, also known as stock fraud and investment fraud, is a deceptive practice in the stock or commodities markets that induces investors to make purchase or sale decisions on the basis of false information.public defender
A public defender is a lawyer appointed to represent people who otherwise cannot reasonably afford to hire a lawyer to defend themselves in a trial. Several countries provide people with public defenders, including the UK, Belgium, Hungary and Si ...
in his on the day of his arrest in his first court appearance. The
Securities and Exchange Commission
The United States Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street crash of 1929. Its primary purpose is to enforce laws against market m ...
soon filed a civil complaint in order to freeze Jakob's assets and recover his profits from the illegal hoax.
Alejandro Mayorkas
Alejandro Nicolas Mayorkas (born November 24, 1959) is an American attorney and government official who was the seventh United States secretary of homeland security, serving from 2021 until 2025. A member of the Democratic Party, Mayorkas previ ...
, US attorney for the central district of California, said that the FBI tracked Jakob's email to Internet Wire to a computer library at El Camino Community College, where Jakob had been a student until early August. Agents recognized that the email was sent by someone familiar with Internet Wire's procedures, and they identified Mark S. Jakob. His stock market trades were a further indication of his involvement, sales on August 17 and 18 at prices from $72 to $92, leading to mounting losses as Emulex stock rose.
Jakob pled guilty in December 2000 and was sentenced to 44 months in prison in March 2001. In July 2001 he settled the SEC's civil lawsuit against him, agreeing to pay approximately $353,000 to cover his $241,000 in gains, $97,000 in trading losses he avoided, and $15,000 in interest, per the terms of the settlement. Jakob additionally agreed to pay a $102,642 civil penalty. Jakob's fraud cost Emulex shareholders an estimated $110 million.