A North Carolina man who tried to boost the price of his company's stock by posting a fake news story about it on the World Wide Web was sentenced to five years' probation and ordered to pay $93,086.77 in restitution to his victims.
Gary Dale Hoke's page, put on the Web on April 7, closely resembled pages from Bloomberg News and reported that PairGain Technology Inc. was about to be purchased by an Israeli company. Hoke, a former PairGain employee, had admitted to hoping to profit from the appreciation of his shares of the company's stock, but he did not actually sell his shares that day.
Hoke, 25, put the elaborate fraud in motion by posting the page via Angelfire, a free Web page service, and then touted the news story via Hotmail, a free e-mail service. Hoke apparently believed that the fact that those sites allow users to operate without using their real names would afford him the cloak of anonymity, but law enforcement officials were able to track Hoke down in less than a week after obtaining Internet access records from those companies.
"People think the Internet is totally anonymous," said Assistant U.S. Attorney Christopher Painter, who prosecuted the case. "It's not."
The scam worked, albeit briefly. The takeover rumor drove the price of PairGain common stock up from $8.59 3/8 per share to $11.25 before the company issued a press release declaring the report a hoax. PairGain shares fell back to $9.37 1/2 per share within two hours of the initial flurry of activity; 13.7 million shares of stock traded hands that day.
"It's really the first time that the Internet has been used for a stock-manipulation scheme like this," Painter said, because the scam "goes a couple of steps further" than attempts to boost or depress share prices by floating rumors. "Prior to the Internet, this couldn't have happened," Painter said. "You couldn't have somebody making up a Washington Post story and airdropping it over Washington."
U.S. District Chief Judge Terry J. Hatter Jr. also ordered Hoke to spend five months in home detention and instructed him to engage in online activities only using his real name; Hoke will also have to get the approval of his probation officer before conducting online financial transactions.
A call to Hoke's home yesterday was not returned.
The investigation was conducted by the Los Angeles field office of the FBI, working with the Securities and Exchange Commission and the FBI's field office in Charlotte.
Painter said the Internet has become a "double-edged sword" for investors because "it allows information to get out very quickly" and it allows fraud to occur. "People have to exercise caution--they have to use the same common sense that they use with any information," he said.