LOS ANGELES -- An employee of PairGain Technologies Inc. who drove up the company's stock by posting a phony news report on the Internet was sentenced today to home detention and probation.
Gary Dale Hoke, 26, of Raleigh, N.C., also was ordered to pay $93,000 in restitution to investors who purchased PairGain stock and sold at a loss after the telecommunications equipment company denied the bogus report that it was about to be purchased by an Israeli company.
Hoke, who did not profit from the hoax, pleaded guilty to two counts of securities fraud. He was originally charged with five counts and faced a maximum sentence of 10 years in prison and up to $1 million in fines per count.
U.S. District Judge Terry Hatter dismissed prosecutors' recommendation of 12 to 13 months in prison, saying he was convinced Hoke's decision to post the fraudulent story was an aberration in an otherwise honorable life.
Hatter said he agreed with an assertion made by Hoke's mother that the Internet lacks adequate safeguards against such fraud.
The fake story was made up to look like it had been posted on a Bloomberg News Service Web site. Hoke told Hatter he posted the story to counter chat room messages that disparaged PairGain and the value of its stock. He said he believed the messages were posted by traders who hoped to profit by driving down the price of the company's shares.
At the time, Hoke owned 1,000 shares of company stock and had options on another 5,000. He sold none of them and said he never intended to make money as a result of the story.
"It's my goal to pay off the restitution as quickly as possible. I want to redeem myself," Hoke said. The five months of home detention was designed to allow Hoke to work in order to make restitution. He also got five years' probation.
Hoke worked as an engineer at a PairGain facility in North Carolina since 1997. Federal prosecutors described Hoke as a midlevel engineer in electronics development for the Irvine, Calif.-based company.
The April 7 hoax pushed up PairGain stock more than 30 percent, from $8.50 per share to as high as $11.25. Trading on the stock that day amounted to 13.7 million shares, about seven times its average trading volume. The price of PairGain stock fell back to $9.38 per share when the company issued a statement denying such a deal was in the works. This afternoon, shares of PairGain were at $10.43 3/4 , down 50 cents, on the Nasdaq Stock Market.
Hoke was arrested at his home after the FBI traced Internet addresses to him.
Bloomberg LP, parent company of the news service, has filed a related lawsuit against Hoke in federal court in New York City, seeking unspecified damages.