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PairGain worker arrested
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April 15, 1999: 7:21 p.m. ET
FBI arrests employee in Raleigh, N.C., for alleged stock-pumping hoax
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NEW YORK (CNNfn) - U.S. officials arrested an employee of PairGain Technologies Inc. Thursday for allegedly posting a fake news report on the Web last week that sent the company's shares soaring.
The FBI arrested 25-year-old Gary Dale Hoke, a PairGain engineer, charging him with securities fraud connected with the posting and dissemination of a Web page designed to look like the news site of Bloomberg LLP.
Hoke, a resident of Raleigh, N.C., was arraigned before a judge in North Carolina and released on $50,000 bond.
The bogus report appeared April 7 on the board Angelfire.com, a subsidiary of Internet portal Lycos (LCOS), and was touted on the "Buyout News" message board of Lycos rival Yahoo! (YHOO).
The false report, which was presented on a page formatted to resemble Bloomberg's site, said an Israeli firm, ECI Telecom, would buy PairGain for $1.35 billion in cash and stock.
As word of that posting spread, PairGain shares rose 32 percent in heavy volume. After learning of the false report, Bloomberg issued a statement saying it was fake, causing the shares to fall back sharply.
In a civil lawsuit filed Monday, Bloomberg targeted five unidentified people. A lawyer for the news provider said he was impressed by the government's speedy reaction.
Richard Klein, a partner at the company's law firm, Willkie, Farr & Gallagher, said: "Bloomberg is impressed by the speed with which the FBI and the U.S. attorney for the central district of California has acted in charging an individual they believe is responsible for perpetrating this hoax."
The FBI traced the alleged machinations of Hoke, and others who talked up the report, by way of several Internet service providers and mail servers.
"One of the things about Internet crime and people conducting business over the Internet: They leave electronic footprints and we're able to go back and identify people through those electronic footprints," said FBI agent Richard Wade.
According to the complaint, Hoke allegedly worked on the scheme while at work, and the false report was posted on the Internet service provider Mindspring (MSPG).
"It's unfortunate that this guy was, if it is this person, sitting in a PairGain chair when he did some of this work," said Charles McBrayer, PairGain's chief financial officer.
The hoax garnered much attention in media circles, prompting concerns that investors may be too quick to buy on information gleaned from the Web.
PairGain said Hoke was employed at a Raleigh design center and has worked for the maker of communications gear for two years. He has been suspended without pay.
The government's criminal complaint, filed Thursday, names one investor in Santa Ana, Calif., as having bought 1,500 PairGain shares after seeing the fake report.
The complaint doesn't include any indication Hoke personally profited from the run-up in the PairGain stock. But Hoke is said to hold accounts at top online brokerages Ameritrade (AMTD) and E*Trade (EGRP), and trading of PairGain shares in his Ameritrade account occurred in January.
Hoke also owns an unspecified number of PairGain stock options, according to the FBI complaint.
An online version of Hoke's 1996 resume, discovered by CNNfn, shows a technology-savvy graduate from Raleigh's North Carolina State University.
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