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An investor seeking class status has filed a complaint in federal court in New York seeking damages for financial losses he and others sustained after a phony press release was disseminated over the Internet by two news services ( Ronald Hart v. Internet Wire, Inc. and Bloomberg, L.P., No. 00-CIV-6571, S.D.N.Y.). The action was filed in the U.S. District Court for the Southern District of New York Sept. 1 by Ronald Hart, who sold his Emulex shares after hearing the false information. According to his attorneys, Hart sustained an estimated $15,000 in damages from the sale. $2.2 BILLION LOSS Mark Jacob, a former Internet Wire employee, allegedly posted fictitious information about the software manufacturer on Aug. 25 to avert a sizable loss from a misguided short sale, according to the Securities and Exchange Commission. In the four hours the statement was disseminated via the Internet, Emulex suffered a $2.2 billion loss in market capitalization, the SEC said. Jacob was arrested six days after the hoax by the Federal Bureau of Investigation and charged with securities fraud. His assets — including the $241,000 Jacob allegedly netted from the incident — were temporarily frozen by a federal judge Sept. 1, the SEC said. FAILURE TO VERIFY At approximately 9:30 a.m. Aug. 25, Internet Wire disseminated Jacob’s press release, which contained in its headline false allegations of an SEC investigation into the company’s accounting practices and untrue assertions that Emulex’s CEO had resigned as a result of the probe. The text of the release stated that Emulex’s net income for the fourth quarter of fiscal 2000 would be reduced from 25 cents per diluted share to a loss of 15 cents per diluted share, and that the company’s net earnings for the fiscal years 1998 and 1999 would be accordingly adjusted. After learning of the bogus statement on the Internet Wire, Bloomberg allegedly crafted a story based on the information found therein. At 10:13 a.m. the day of the incident, Bloomberg falsely reported the alleged SEC investigation and resignation of Emulex’s CEO, and one minute later falsely reported the fourth-quarter restatement of results, according to Hart. ‘RED FLAG’ The actions of the defendants were reckless because of several factors which should have raised suspicion about the press release’s authenticity, Hart alleges. Neither Bloomsberg nor Internet Wire contacted Emulex to verify the authorship of the press release, according to the complaint. Included with the phony statement was the name and contact information of an actual Emulex employee — who was not involved with the hoax — but the statement was provided to the Internet Wire by someone claiming to be a member of a public relations firm. Also noted in the complaint is Emulex’s reliance on Business Wire for the dissemination of company news. “Given the substance of the ‘press release’ and the likely devastating effect upon the price of Emulex securities, the purported use of Internet Wire to carry the ‘press release’ constituted a red flag concerning the authenticity of the ‘press release’ and the truthfulness of the information included therein,” the complaint states. The timing of Internet Wire’s dissemination of the press release was questioned as well by Hart, who alleged that the information was first submitted by Jacob in the afternoon hours of Aug. 24 and inexplicably held until the opening of trading the following day. “The ‘press release’ was disseminated by Internet Wire . . . precisely when the market opened, rather than after the market closed, or sufficiently before the market opened, or after obtaining a halt of trading, as would be customary with such devastating information,” the complaint states. 4-HOUR WINDOW If granted class certification, Hart’s fellow plaintiffs could include any Emulex shareholder who sold common stock or call options in the company between 9:30 a.m. E.S.T. and 1:29 p.m. E.S.T., with the exception of those affiliated with Bloomberg and/or Internet Wire. As of May 4, 2000, approximately 36,112,075 Emulex shares were issued and outstanding, according to the lawsuit. The SEC estimates that 2.3 million Emulex shares were traded as a result of the hoax. The plaintiffs are represented by Patrick A. Klingman, Andrew M. Schatz, Jeffrey S. Nobel and Robert W. Cassot of Schatz & Nobel in Hartford, Conn. � Copyright 2000 Mealey Publications, Inc.

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