Emulex hoax throws wires under scrutiny

COSTA MESA, CA: The now-infamous fraudulent press release that temporarily sent Emulex's stock tumbling on August 25 has already become a case study on how to handle a crisis at Web speed. But unlike any incident in recent memory, the Emulex hoax has uncorked an avalanche of PR problems for wire services and news agencies.

COSTA MESA, CA: The now-infamous fraudulent press release that temporarily sent Emulex's stock tumbling on August 25 has already become a case study on how to handle a crisis at Web speed. But unlike any incident in recent memory, the Emulex hoax has uncorked an avalanche of PR problems for wire services and news agencies.

COSTA MESA, CA: The now-infamous fraudulent press release that temporarily sent Emulex's stock tumbling on August 25 has already become a case study on how to handle a crisis at Web speed. But unlike any incident in recent memory, the Emulex hoax has uncorked an avalanche of PR problems for wire services and news agencies.

The bogus announcement, which went out on the fledgling Internet Wire, focused attention on the procedures of the disclosure-wire industry. Category leaders PRNewswire and Business Wire were swift to heap scorn on their new competitor.

'It would never have happened if Internet Wire had done their job,' said BW founder and president Lorry Lokey.

Internet Wire president and CEO Michael Terpin responded by tersely defending his company: 'I would ask that (we) be provided comparable space to critique the fraudulent press release that PR Newswire put out last month on the AutoNation buyout and/or the April Business Wire press release from the fictional company WebNodes.'

By the end of last week, PR leaders were calling for a task force to develop standards for disclosure practices. As Motley Fool senior analyst Bill Mann put it, 'In the absence of an arrest, everyone is looking for a scapegoat.'

For Emulex, a California-based component supplier to computer manufacturers such as IBM, the rude awakening forced the company to create an ad hoc committee to handle calls from shareholders, customers, partners and the media. In an unprecedented tactic, CFO Michael Rockenbach returned every single call he received from hundreds of concerned shareholders.

'The media was absolutely responsive,' said Emulex PR manager Robin Schnug.

'From the local Orange County news to the major networks, they were all at our door.'

Still, Schnug said the time-zone difference posed by Emulex's West Coast location was no excuse for wires that ran the fraudulent announcement, and pointed to another verification option: 'An alternative would have been to call Nasdaq surveillance to see if the release had been filed with them.'

Contrary to the recovered fortunes of the company - despite the initial 62% tumble in stock price, Emulex closed the day down only dollars 7.44 - the company's market ride left a lot of bodies on the field. And perhaps the media's overwhelming responsiveness was motivated by some shared guilt for having led with an unverified story.

Bloomberg ran the bogus release without getting confirmation from the company. Hence editor-in-chief Matt Winkler spent the day issuing mea culpas and thumping his company's 800-page procedures and style book, The Bloomberg Way. 'I reminded the entire reporting staff that they have to be meticulous when the words 'said' and 'did' are used to uncover the context,' he said.

See editorial, p14.



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