Don't believe everything you read. That's certainly one of the lessons from the August press release hoax that more than halved the price of Emulex Corp. stock in 59 minutes and resulted in the arrest of a 23-year-old who had netted nearly $250,000 on his positions. The price quickly recovered after trading was halted on Nasdaq, but the event left many pondering the market's vulnerability to instant information.
It certainly was a wake-up call for the wire services, especially Internet Wire, where the suspect had worked. Says Michael Rockenbach, CFO of Emulex, a fiber-channel adapter maker based in Costa Mesa, Calif., "You don't want to be the only one without the news, but you don't want to be the only one out there with something like this," which claimed the CEO had resigned and that the company was the target of an SEC probe.
The gullibility of small investors also came into play. Rockenbach notes that most of the frantic trading was done by individual investors, "who tend to trade on news and the direction of stocks and tend to be much more reactionary. The larger institutions were more skeptical."