Thomas C. Newkirk
Yuri B. Zelinsky
Richard C. Sauer
Deborah G. Heilizer
Alex Lipman
William Yurek
Securities and
Exchange Commission
450 Fifth Street, N.W.
Washington, DC
20549-0808
(202) 942-4890
(Zelinsky)
Local Counsel:
Joel T. Kornfeld (Cal.
Bar No. 115945)
Securities and
Exchange Commission
5670 Wilshire
Boulevard, 11th Floor
Los Angeles, CA 90036-3648
(323) 965-3839
Attorneys for the
Plaintiff,
Securities and
Exchange Commission
UNITED
STATES DISTRICT COURT
FOR
THE CENTRAL DISTRICT OF CALIFORNIA
:
SECURITIES AND
EXCHANGE COMMISSION, : Civ. Action No.
: 99- ( )
:
Plaintiff, :
: COMPLAINT FOR
v. : INJUNCTIVE RELIEF
: AND CIVIL PENALTY
GARY DALE HOKE, JR., :
:
Defendant. :
:
Plaintiff
Securities and Exchange Commission ("Commission"), for its Complaint
against defendant Gary Dale Hoke, Jr. ("Hoke"), alleges as follows:
JURISDICTION
AND VENUE
1. The
Commission brings this action pursuant to the authority conferred upon it by
Sections 21(d) and (e) of the Securities Exchange Act of 1934 ("Exchange
Act") [15 U.S.C.
'' 78u(d) and (e)] to
enjoin Hoke permanently from future violations of the federal securities laws
and granting other relief.
2. This
Court has jurisdiction over this action, and venue is proper, pursuant to
Sections 21(d)(3),
21(e) and 27 of the Exchange Act [15 U.S.C.
'' 78u(d)(3), 78u(e) and 78aa].
SUMMARY
3. Defendant
Hoke disseminated to the investing public a report falsely announcing that
PairGain Technologies, Inc. ("PairGain"), a public company whose
shares are traded on the National Association of Securities Dealers Automatic
Quotation ("NASDAQ") System, was being taken over by another
company. Specifically, on the morning
of April 7, 1999, Hoke posted a message on the Yahoo!.Finance Message Board, a
World Wide Web page, that falsely reported that PairGain was being bought by an
Israeli company. That posting provided
a direct Internet link to another World Wide Web page, which appeared to be a
Bloomberg News Service page containing an announcement of the acquisition. In fact, this page was a fabrication, also
created by Hoke.
4. The
publication of this report caused significant trading activity in PairGain
securities and caused the market price of PairGain securities to increase
substantially. After the report was
exposed as a hoax, the price of PairGain securities declined precipitously.
5. Hoke's
conduct constituted the manipulation of the price of publicly traded
securities. By knowingly or recklessly
engaging in this conduct, Hoke, directly or indirectly, violated, and, unless
restrained and enjoined, may again violate, Section 10(b) of the Exchange Act
[15 U.S.C.
' 78j(b)] and Rule
10b-5 thereunder [17 C.F.R.
' 240.10b-5].
6. In
connection with the acts, transactions, and practices alleged herein, Hoke,
directly or indirectly, made use of the means or instruments of transportation
or communication in interstate commerce, or of the mails and of the facilities
of a national securities exchange.
DEFENDANT
7. Gary
Dale Hoke, Jr., 25, resides in Raleigh, North Carolina. He has been employed as an engineer at
PairGain's offices in North Carolina since January of 1997.
CLAIM ONE
(STOCK
PRICE MANIPULATION)
Violation
of Section 10(b) of the Exchange Act [15 U.S.C.
' 78j(b)]
and
Rule 10b-5 thereunder [17 C.F.R.
' 240.10b-5]
8. PairGain
Technologies, Inc., located in Tustin, California, designs, manufactures, and
markets Digital Subscriber Line networking systems worldwide. Its common stock is registered with the
Commission pursuant to Section 12(g) of the Exchange Act and traded on the
NASDAQ System. Options on its common
stock are traded through the Chicago Board Options Exchange.
9. Yahoo!.Finance
is a World Wide Web business and finance news and information service of Yahoo!
Inc., an Internet search and information provider. Yahoo! is one of the most widely used World Wide Web
gateways. Included in the
Yahoo!.Finance service is a public message board that is available for posting
business-related information.
10. Bloomberg
is a global news service that serves the financial and business community. One of Bloomberg's information outlets is
Bloomberg.com, its main page on the Internet from which other Bloomberg pages
and Bloomberg stories can be accessed.
All Bloomberg.com pages are distinctive and easily recognizable and bear
a distinctive Bloomberg logo.
11. At
approximately 9:27 a.m. EDT, on April 7, 1999, an individual using the screen
name "Stacey Lawson" posted a message on a Yahoo!.Finance Message
Board, stating that PairGain was being acquired by the Israeli company ECI
Telecom Ltd. That posting provided an
electronic link to a purported Bloomberg News World Wide Web page, which, in
turn, purported to reprint a PairGain press release announcing the merger. It stated, among other things:
ECI
Telecom Ltd. and PairGain Technologies, Inc. today jointly announced that they
have entered into a definitive agreement under which ECI Telecom Ltd. will
acquire PairGain Technologies, Inc. in a cash transaction. . . . The transaction has an implied value of
$1.35 billion, which includes the equity purchase price as well as a technology
development plan.
12. That
linked page, although resembling a Bloomberg News page in all respects, and
containing additional electronic links to actual Bloomberg pages, was a
fraud. Neither company had made any
merger announcement and no such merger had been agreed upon between the companies.
13. Both
the Yahoo!.Finance Message Board posting under the name Stacey Lawson and the
counterfeit Bloomberg page were created and posted by Hoke.
14. In
posting these pages, Hoke attempted to conceal his identity by channeling
information through several different Internet service providers to whom he
gave fictitious names and other identifying information.
15. Immediately
following Hoke's posting of the false acquisition announcement, the price of
PairGain stock rose approximately 31% in heavy trading. Transactions in both PairGain common stock
and options occurred at prices inflated by Hoke's bogus press release,
including transactions by investors located in the Central District of
California.
16. Later
on April 7, 1999, PairGain, ECI Telecom, and Bloomberg issued press releases
denying the statements made in the counterfeit Bloomberg article. After these announcements, the price of
PairGain stock declined approximately 20%.
17. Hoke
knew or was reckless in not knowing that his statements concerning a merger
between PairGain and ECI Telecom were materially false and misleading and, in
addition, that posting those statements on a counterfeit Bloomberg page would
materially mislead investors as to the reliability of that information.
18. Hoke
knew or was reckless in not knowing that the posting of the false information
concerning the acquisition of PairGain by ECI Telecom would result in an
increase in both the price and the volume of trading in PairGain securities.
19. As
set forth more fully above, Hoke, directly or indirectly, by use of the means
or instruments of transportation or communication in interstate commerce, or by
the use of the mails and of the facilities of a national securities exchange,
in connection with the purchase or sale of securities:
(a) has
employed devices, schemes, or artifices to defraud,
(b) has
made untrue statements of material facts or omitted to state material facts
necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading, or
(c) has
engaged in acts, practices, or courses of business which operate or would
operate as a fraud or deceit upon any person.
20. By
reason of the foregoing, Hoke, directly or indirectly, has violated Section
10(b) of the Exchange Act and Rule 10b-5 thereunder.
RELIEF
REQUESTED
WHEREFORE, the Commission respectfully requests that
this Court enter an Order:
I.
Permanently
restraining and enjoining Gary Dale Hoke, Jr. from future violations of Section
10(b) of the Exchange Act [15 U.S.C.
' 78j(b)] and Exchange Act Rule 10b-5 [17 C.F.R.
' 240.10b-5] thereunder.
II.
Ordering
Hoke to pay a civil monetary penalty pursuant to Section 21(d)(3) of the
Exchange Act [15 U.S.C.
' 78u(d)(3)].
III.
Granting
such other relief as this Court may deem just and appropriate.
Dated:
April 21, 1999 Respectfully
submitted,
Thomas
C. Newkirk
Yuri B.
Zelinsky
Richard
C. Sauer
Deborah
G. Heilizer
Alex
Lipman
William
Yurek
Attorneys
for Plaintiff
Securities
and Exchange Commission
450
Fifth Street, N.W.
Washington,
DC 20549-0808
(202)
942-4890 (Zelinsky)
Local Counsel:
Joel T. Kornfeld (Cal.
Bar No. 115945)
Securities and
Exchange Commission
5670 Wilshire
Boulevard, 11th Floor
Los Angeles, CA
90036-3648
(323) 965-3839