Fake press releases are not uncommon. There have been many instances, for example, of bogus text dressed up to look like a real press release and then hopefully pasted by fraudsters onto internet message boards with the hopes of sparking trading in the underlying security. True "hoax" press releases that are able to bypass wire service security measures and actually go out over the wire services are much less common, however. Indeed, until last week at least, only two such hoax press releases came to mind:

1. In August 2000, Mark Jakob, an employee of Internet Wire, Inc., sold short 3,000 shares of a company called Emulex. Using an alias and purporting to act on Emulex's behalf, Jakob then send an e-mail instructing Internet Wire to issue an attached, hoax press release for Emulex that stated that the SEC was investigating Emulex's accounting practices, that its CEO had resigned, and that it would revise its earnings to report a loss instead of a profit.

Within minutes of the release going out, Emulex shares plummeted almost $61, resulting in Emulex's losing $2.2 in market capitalization. NASDAQ halted trading 16 minutes after the release went out after learning from Emulex that it was false. Emulex resumed trading later that day after the hoax was discovered, and the price rebounded to close at $105.75.

The SEC charged that just before the trading halt, Jakob covered his short position, realizing a profit of over $54,000. Minutes later, Jakob purchased 3,500 shares, which he sold on August 28, 2000, at a profit of over $186,000, for a total profit of over $241,000. Jakob was ultimately convicted and sentenced to 44 months in prison for his actions.

2. In December 2006, a hoax press release went out over PR Newswire purporting to be from Innotrac Corporation. It announced a "multi-year, multi-million dollar customer service and technical support agreement" with a large corporate client, causing the stock price quote to promptly double and trading volume to go from an average of 10,000 to close to 300,000 shares. Later that day, Innotrac isued a statement that the release "was not authorized by the Company and is totally untrue." (To my knowledge, the SEC never identified the fraudster in this case).

Oddly, there have been two new hoax press releases in the past week alone. Last Tuesday, a news release went out over PR Newswire stating "Obama Orders Full Investigation of General Mills Supply Chain Following Food Recalls." The hoax release managed to get past PR Newswire's security process, but was taken down within minutes after it was detected by General Mills. General Mills stated that despite its quick action, "headlines and stories appeared briefly on newswires and online. Those stories were retracted and removed, but automated alerts from services such as Google further disseminated the false headlines, some with links to the hoax release or to retracted news stories."

PR Newswire said it could not discuss the matter "because there is an investigation pending with the SEC and possibly law enforcement officials.”

Then, on Friday of last week, a hoax press release went out over Business Wire with the headline, "US Supreme Court Split - Rules in Favor of Big Pharma." The hoax release falsely identified Javelin as the source of the information about a bogus Supreme Court opinion that Javelin's "acute pain products had been lawfully produced and marketed." The phony release added that:

Javelin applauded the result as a "huge success for Big Pharma. This will make waves in the Pharmaceuticals Industry for there are similar cases in the pipeline for other large companies other Federal Courts. The impact of this ruling will be felt for years to come. We would like to thank the Court for their decision - Clarence Thomas was particularly influential in swaying the vote our way."

Javelin stated today that it quickly learned about the hoax release and notified Business Wire immediately. Business Wire issued a retraction at approximately 7:45 a.m. EDT on Saturday, June 19, 2010.