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Class Action Suit Filed Against Internet Wire and Bloomberg over Emulex Hoax

(September 5, 2000) An Emulex investor filed a class action complaint for securities fraud in federal court in New York City against Internet Wire and Bloomberg for republishing false information about Emulex.

See, Class Action Complaint in Hart v. Internet Wire and Bloomberg, U.S. District Court, SDNY, 8/31/00.

Ronald Hart filed a complaint in U.S. District Court in New York City that alleges fraud under Section 10(b) of the Securities Exchange Act of 1934 and Section 10(b)(5) of SEC rules.

Both Internet Wire and Bloomberg published stories about Emulex that were based on a fraudulent press release written by former Internet Wire employee named Mark Jakob. Jakob has since been arrested by the FBI, and charged with securities fraud by the Securites and Exchange Commission.

Mark Jakob traded in Emulex stock in anticipation of price changes resulting from his hoax. His fraudulent press release caused Emulex stock to temporarily drop by $70.

Class Actions
A class action is a civil court procedure under which one party, or a group of parties, may sue as representatives of a larger class. To proceed, the court must permit the class action. If the class action is certified, members of the class must be given notice, and the opportunity to exclude themselves from the proceeding. Only the class members who opt out are not bound by the judgment in the case. Class actions in federal courts are governed by Federal Rule of Civil Procedure 23.
See also, TLJ summary of class actions, with text of Rule 23.

The complaint was filed by the law firm of Schatz & Noble, and seeks class action status. The class is defined in the complaint as "all persons who sold common stock or call options in Emulex Corporation ("Emulex") or purchased put options in Emulex on August 25, 2000 between the opening of the market at approximately 9:30 a.m. EST (when the misleading information described below was first disseminated) and 1:29 p.m. EST (before trading of Emulex securities resumed following a halt of trading) ..."

The complaint alleges that Internet Wire and Bloomberg were "reckless in their dissemination of the false representations". The facts alleged in support of this allegation include that neither Defendant took any steps to verify the authenticity or accuracy of the release, that the release was issued at the time of opening of the NASDAQ rather than its closing time, and that the headline of the release referenced facts not contained in its body.

The complaint also alleges that release constituted a "red flag" because of its "likely devastating effect upon the price of Emulex securities".

The complaint seeks a class action status, monetary damages, costs of suit, and attorneys fees. A jury trial has been demanded.

The complaint was filed by Patrick Klingman of the law firm of Schatz & Noble.


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