Stock Fraud Is Traders' Gain

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NEW YORK: It was the oldest trick in the book, in the most modern of guises. "Just found it on Bloomberg," the missive posted on Yahoo's message boards read, and it was hot-linked to a "news article" that looked very much as if Bloomberg, the instant-business-news web site that is something of a bible in the quick-turnover world of institutional and day traders, had indeed run the story. ECI Telecom Ltd., an Israeli technology company, was buying Pairgain Technologies Inc., an American rival, for $1.35 billion in cash -- twice Pairgain's market value just a day earlier. Time to buy Pairgain, right?

Well, yes and no. The report was a fake, dressed up in Bloomberg clothes by a web-savvy prankster (still at large) on's free web site community, and released at exactly the right time: after the Israeli markets closed and a half-hour before NASDAQ opened. It had quotes, attributions and numbers, and fooled everybody. But if it was fraud, how come everybody made money? Pairgain stock closed at $8.50 Tuesday, but with the false report indicating a buyout price of $19, the stock peaked at $11.125. The stock then retreated as the report was debunked, but at closing Wednesday -- here's market madness for you -- it was at $9.375. And Thursday morning, when every trader and his brother had read about it? Settling in at $9.125. With fraud like that, who needs the SEC?