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Pairgain worker admits fraud
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June 22, 1999: 11:42 a.m. ET
Ex-engineer pleads guilty to creating false Web site, bogus merger story
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NEW YORK (CNNfn) - A former Pairgain Technologies Inc. employee has pleaded guilty to two counts of securities fraud for posting a fake news report on the Internet that sent the value of his company's shares soaring.
The U.S. Attorney's Office in Los Angeles confirmed that Gary Dale Hoke pleaded guilty Monday to creating a fake Web page on the Internet and using an alias on a Yahoo! Inc. (YHOO) message board to tout the purported buyout of the company.
Hoke, a 25-year old former Pairgain engineer, sent the company's shares climbing 32 percent by providing a link on the message board to a bogus news report he created to look like the Bloomberg LLP news site. The news report suggested Pairgain -- a Tustin, Calif.-based telecommunications equipment provider -- was being acquired by the Israeli firm ECI Telecom for $1.35 billion in cash and stock.
Among those taken in by the scheme included well-known money manager James J. Cramer, co-founder of the Wall Street news and gossip column thestreet.com.
After a big spike following Hoke's bogus report, Paigain shed most of its gains, but has since returned to lofty heights.
However, Hoke -- who was suspended without pay following the incident -- did not plead guilty to profiting from the scheme. Federal prosecutors said he planned on trading his stock and realizing a substantial profit, but essentially got "cold feet."
Hoke's trial was set to begin on July 6, but he will now be sentenced on Aug. 30. Hoke had faced up to 20 years in prison if convicted on all 5 counts, but under the plea bargain he will likely face a "much shorter sentence" of around a year, Painter said.
But prison may not be the end of it. Bloomberg has a civil lawsuit pending in federal court in New York against five unidentified people it believed were behind the scam.
Assistant U.S. Attorney Christopher Painter said Hoke explained that he carried out the scheme to enhance the company's stock value and "to counter some of the bad publicity he'd seen about the company."
In one respect, Hoke may have at least partially succeeded. Pairgain (PAIR) stock has traded as high as 16-1/8, well above the 11-1/8 intraday peak reached on April 7, the day Hoke posted the fake story and bulletin board note. The company's stock was down 1/8 to 11-5/8 in early trading Tuesday.
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