Dow and S&P 500 Set Records; Financial Shares Rally
By ROBERT D. HERSHEY JR.
NEW YORK -- The Dow Jones industrial average and Standard & Poor's
500-stock index set records Wednesday, led by a rally in bank and
brokerage stocks. The Nasdaq market, however, retreated from its
"Today there was a flip-flop," said David Dietze, president of Point
View Financial Services in Summit, N.J. "People seemed to want to
take profits in technology and move into some of the more traditional
AT&T, Citigroup, J.P. Morgan, American Express and IBM together
accounted for 70 percent of the 121.82-point gain in the Dow Jones
industrial average, which rose to 10,085.31, an increase of 1.22
percent. It was the Dow's third close above 10,000.
The Standard & Poor's index rose 9 points, to 1,326.89. The
technology-heavy Nasdaq fell 18.74 points, to 2,544.43, as investors
paused to cash in profits in some recent highfliers. America Online,
for example, slumped 9 1/2, to 158, but is still more than nine times
higher than it was in September. Yahoo fell 6 7/16, to 208 7/16, as
investors awaited its earnings, which were announced after the market
Yahoo said net income rose to $16.4 million, or 7 cents a share, up
from $3.3 million, or 2 cents a share, in the quarter a year earlier.
Shares of Yahoo surged as much as $8.5625, to $217, in after-hours
"There was a rush for the tried and true names," said Richard Sichel,
chief investment officer at Bryn Mawr Trust Co. "People were saying
let's step in and look at something that's not selling at a
stratospheric price-earnings ratio."
April 8, 1999
Fake Internet News Account Sends a Stock Price Soaring
By EDWARD WYATT
One of Wall Street's oldest frauds has been updated for the Internet age.
Using a personal World Wide Web site intended to look like an
Internet page of Bloomberg News, someone posted a fake report early
Wednesday that said an American technology company called Pairgain
Technologies Inc. was being taken over by an Israeli rival for a
hefty price. The report spread to a Yahoo message board and then to
other sites frequented by stock traders, who quickly bid up
Pairgain's stock by more than 30 percent.
By midday, the stock retreated as the takeover report was debunked,
but it still finished the session as the 12th most heavily traded
issue on Nasdaq, ahead of such popular ones as Amazon.com and E*trade
The hoax, which is under investigation by the Securities and Exchange
Commission and Nasdaq officials, shows the startling influence of
Internet chat rooms and the power of day traders, who can easily move
the price of relatively small stocks with their trades.
Investors who were duped into buying shares at the temporarily
inflated price have suffered at least paper losses, though it could
be weeks before regulators are able to sort out who was trading.
Bloomberg said the article was not the work of any of its reporters,
and as of last night, the prankster had not been identified.
Pairgain, a Tustin, Calif., maker of telecommunications equipment,
and its reputed suitor, ECI Telecom Ltd., denied being in merger
False rumors about a company have percolated as long as markets have
existed, and prank announcements of takeovers have occurred during
times of intense interest in the stock market, like the late 1980's,
when corporate raiders garnered headlines. But analysts called the
Pairgain story -- which made generous use of the scrolling text, Web
links and icons familiar to Internet users -- one of the most
sophisticated examples of such fraud in years.
Anthony Elgindy, an online stock trader who operates Pacific Equity
Investigations, a stock research service, called the fake report
"It was detailed enough -- with quotations and remarks and
attributions -- that it reads as if it came from a press release that
the company wrote," he said.
The fraud was well orchestrated. The posting appeared on the Internet
just a half-hour before trading began on the Nasdaq market, leaving
little time for anyone to check with the companies but enough for
investors to place orders to buy shares.
It started at 8:55 A.M.on Angelfire.com, a Web site operated by Lycos
Inc., which lets individuals create their own Web pages. The report
first appeared not on a message board or in a chat room, but on a
personal page that could have been created by any registered
Angelfire user. The report, carrying the Bloomberg.com logo, said
that ECI had agreed to buy Pairgain for $1.35 billion in cash, twice
Pairgain's market value just a day earlier.
How the news traveled to broader investment circles on the Internet
is not yet clear. But roughly a half-hour later, a reference to the
Angelfire posting and a link to the page appeared on a Yahoo message
board devoted to investment topics, which was quickly followed by
postings on other Internet sites.
"Wahooooo!!! I knew this day would come!," wrote one enthusiastic
investor on the Yahoo message board for Pairgain, minutes after word
of the "takeover" appeared. Another calculated a takeover price of
$19 a share, quite a jump from the Pairgain closing price of $8.50 on
Tuesday. A third noted that Pairgain's products, which allow for
high-speed transmission of data over traditional copper wires, "will
'pair' well" with ECI's products for digital communications.
Once stock trading began, Pairgain shares rose sharply on heavy
volume, peaking at $11.125.
At the end of the day, Pairgain was priced at $9.375, up 10 percent
from Tuesday's close. And nearly 13.7 million Pairgain shares changed
hands in one day, roughly 13 times the average daily volume.
The stock began to retreat as Internet investors began to question
the report and fell further after Pairgain and ECI denied reaching a
deal or even being in talks.
The fake announcement seemed to confirm what had been rumored for
months. Charles McBrayer, Pairgain's chief financial officer, said
similar rumors have cropped up four times in the last year. In
addition, two Israeli newspapers reported last month that ECI was in
talks to acquire an American technology company, possibly Pairgain.
"The Internet should be helpful to individual investors," McBrayer
said. "But in this case, the fakery was done so well that it looked
little different than if the news came from a legitimate source."
Signs of fraud, however, were picked up by amateur sleuths who scan
many online chat rooms for signs of misbegotten investment hype.
Shortly after 10 A.M., one Yahoo participant noted that the Web page
announcing the takeover was not in fact part of Bloomberg's larger
Web site, and the real Bloomberg site carried no word of the takeover
news. Another chipped in that a taped message at Pairgain's investor
relations phone number, which would review news about the company,
did not mention that there would be a major announcement.
S.E.C. and Nasdaq officials declined to comment on whether they were
investigating the hoax; as a practice, they rarely comment on
investigations. But McBrayer said he had talked with officials from
the S.E.C.'s Internet fraud division, as well as Nasdaq's market
surveillance staff, both of which, he said, were looking into the
Brian Payea, a spokesman for Lycos, said the company had not yet been
reached by regulators. He declined to identify the individual who
created the fake Web site, saying it was company policy not to
release information on members unless compelled by legal authorities.
Angelfire said it removed the posting early yesterday afternoon after
it was reached by Bloomberg's lawyers.
Chris Taylor, a spokeswoman for Bloomberg L.P., said the news
service's own computers were not involved in the hoax.
Virtually anyone with Internet access can save an image from a
particular Web page and then, using that template, insert their own
text to create an authentic-looking but fraudulent Web page. In fact,
Angelfire removes several pages a day from its site created by users
who have misused the copyrighted material of other sites, Payea said.
In many ways, the hoax was an old tale in a new guise. In recent
years, the markets and news services have been occasionally duped by
false reports that seemed authentic.
In 1989, a caller to the Nasdaq market's market surveillance unit
identified himself as the chief financial officer of Sybase Inc. and
asked that the company's stock be halted for a pending news
announcement. Trading was halted for more than a half-hour before
Nasdaq officials determined the call was a hoax.
In 1989, the stocks of NWA, parent of Northwest Airlines, and Pan Am
were halted in trading on the New York Stock Exchange after the
Reuters news service reported on a fake takeover bid for both
And in 1987, a financial adviser from a prominent Cincinnati family
called the Dow Jones News Service and announced a takeover bid for
Dayton Hudson, the Midwestern retailer, which the news service
reported. The bid was later determined to be a hoax, and regulators
brought charges of fraud against the adviser, in 1989 barring him
from the securities business.