Shares fell by over 60% when a press release appeared on the Internet Wire news dissemination service that claimed the company’s chief executive was resigning, that the company would restate its fourth quarter earnings, and that Emulex was under investigation by the Securities and Exchange Commission. The release was picked up by and displayed on other on-line news services, including Bloomberg.com. Trading in the company was stopped by Nasdaq when the hoax became apparent. When trading resumed, the stock rapidly recovered. A college student who used to work for Internet Wire has since been arrested on suspicion of perpetrating the hoax.
The law suit accuses Bloomberg and Internet Wire of “recklessly disseminating materially false and misleading information." Investor Ron Hart is alleged to have lost up to $15,000 as a result of the hoax, having sold his 500 Emulex shares as they dropped dramatically in value. Mr Hart is applying for class action status, seeking “to recover damages on behalf of all investors who sold Emulex stock or call options or purchased put options on August 25, 2000 before the resumption of trading,” said his lawyers.