The Online Con

Early one morning in April, a scam operation took just a couple of hours to swindle dozens of investors out of tens of thousands of dollars.

It all began with a message on a Yahoo stock board alerting investors that PairGain Technologies, a Tustin, California, maker of high-speed Internet products, was about to be bought by an Israeli company for $1.35 billion, nearly twice its market value. To reinforce its authenticity, the message contained a link to a Bloomberg news story giving details of the deal. That was enough proof for many investors, who dived into PairGain's stock, immediately bidding it up more than 30 percent, from $8.50 a share to over $11.

It was a hoax: PairGain wasn't being bought by anybody. The "news story" was a phony article, written to mimic a Bloomberg report and posted anonymously on Angelfire, a Web page service.

If eager investors had only stopped to do a little digging, they would easily have uncovered the fraud. All someone had to do was to look for a legitimate press release on www.pairgain.com, for instance, or search for the announcement on any portal.

But the hoax went unchallenged for almost two hours before anyone discovered the lie and warnings started appearing on the Web. Thereupon, PairGain stock quickly tumbled to prehoax levels, leaving bandwagon investors with stock of a much lesser value.

One week later, federal authorities arrested Gary Dale Hoke, a PairGain employee, on charges of stock manipulation. An FBI task force had tracked Hoke down by following electronic footprints from Angelfire and Hotmail.

"This is the first case in which an individual has abused the power of new technology to spread false news to millions of investors at lightning speed," says Alejandro Mayorkas, United States district attorney in Los Angeles, who is handling the case.