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FBI agent describes Emulex stock hoax to students

By Brian Fitzgerald

"Playing the stock market" was listed on Mark Jakob's America Online profile page as one of his favorite activities. Another was "visiting Las Vegas." But last year one of his riskier gambles -- a stock sale -- lost him $97,000. His next bet was a high-stakes one: orchestrating a market hoax that not only allowed him to recoup his losses, but also netted him nearly a quarter of a million dollars.

	SMG Instructor Don Santini (left) and Paul Bertrand, a special agent from the FBI's Securities Fraud Squad. Photo by Kalman Zabarsky

The scam rocked Wall Street. But the 23-year-old college student's ultimate gamble was thinking that he could get away with it. He lost big, thanks to the work of specially trained cyber agents and market fraud investigators from the Los Angeles branch of the FBI. Agent Paul Bertrand detailed Jakob's escapades -- and the bureau's investigation of the case -- for several SMG classes and a LAW class on March 14.

"Mark Jakob was a heavy-duty gambler," said Bertrand. "He would plop down $3,000 to $4,000 at a time in Las Vegas." But Jakob had a lot more at stake when he negotiated a short sale of 3,000 shares of Emulex Corporation stock last August. "In a short sale, a trader borrows stock from a broker and sells the shares in the market, hoping that the price will quickly fall, allowing the trader to replace what he borrowed with stock bought at a lower price," said Bertrand.

SMG Finance Instructor Don Santini invited Bertrand to talk to SMG and LAW students about the case "to give them a law enforcement perspective on Internet stock trading and securities fraud," he says.

Bertrand, a special agent with the bureau's Securities Fraud Squad in L.A., told students of Jakob's panic when Emulex's stock price went up instead, leaving him with monumental losses. The subsequent hoax that Jakob dreamed up to overcome his deficit sent shares of Emulex plummeting 62 percent and cost investors in the high-tech firm an estimated $50 million in losses.

Jakob, from El Segundo, Calif., was a former production worker at Internet Wire, a firm that posts company news releases and financial information on the Web. His financial disaster on the short stock sale took place a week after he quit Internet Wire, but he managed to fool his old employer into driving down the price of the stock so he could recover his losses. He sent an e-mail written under an alias -- Ross Porter, a fictional employee of Emulex's PR firm -- to Internet Wire's overnight staff stating that Emulex's accounting was under SEC investigation, that the company would restate earnings to show a loss, and that its CEO had resigned.

"He used phrases that only customers of Internet Wire would know," said Bertrand, explaining why the company distributed the phony news item without checking its validity. The bet was a sure thing, for the time being.

The company's stock tanked after the news release spread to the media outlets. "One victim I talked to purchased the stocks for $108 a share, went to the bathroom, and when he came back they were worth $60 a share," said Bertrand. "It wasn't a good day for a lot of people. He really caused a lot of damage." The stock dipped as low as $43 a share as alarmed investors dumped their holdings.

While the stock was taking a nosedive, Jakob bought more than 6,000 shares at a low price at a computer center in Las Vegas. When the stock rebounded, he had made about $241,000. But he left a trail of digital footprints. The FBI traced the bogus e-mail to a computer room at Jakob's school, El Camino Community College. He had typed in a fake social security number at the computer room's reception desk, but several people had recognized him that night and agents quickly tapped them as witnesses. When looking at his financial history and his record of stock transactions, investigators couldn't help but notice that Jakob had actively traded in the short window of time between Emulex's stock plunge and when trading was halted.

Bertrand then had another agent -- a former stock trader "who spoke 'broker' pretty well," and like Jakob, had an affinity for surfing -- pose as a compliance analyst for DayTech Brokerage Online, in what the FBI calls a "pretext" phone call. During the call, Jakob confirmed that he placed the trades in Las Vegas. "Now we knew that it wasn't somebody else trading on his account from Vegas," said Bertrand.

"Awesome trade, dude," said the disguised agent. The two also talked about surfing. Bertrand thought that by the end of the hour-long conversation, Jakob "was going to invite the agent over to his house."

Bertrand said that Jakob's personal quote on his Web page was, "Let it ride." Students in SMG Room 208 chuckled at the irony. Jakob wasn't laughing, however, when he read the 38-page criminal complaint charging one count each of securities fraud and wire fraud. He knew that he had gambled his future away. "Jacob confessed after three or four hours," said Bertrand. At his March 27 sentencing, he faces a maximum of 15 years in jail. "He will probably be sentenced to serve 36 to 46 months and pay $110 million in restitution."

It was an elaborate hoax, Bertrand pointed out, but it wasn't very sophisticated. Playing the stock market and gambling may be similar in some respects, but many casino cheaters eventually get caught. So do computer-savvy con men in the stock market, especially when a team of 30 FBI agents works around the clock to bring perpetrators to justice.

23 March 2001
Boston University
Office of University Relations