The lessons of trading in Harman International Industries Inc. (NYSE: HAR) today come from a different form of news, but there is just no way to not draw a parallel to the great old fake news release seen in Emulex Corp. (NYSE: ELX) back in 2000. This morning’s news on Harman came from AME Info, one of the news outlets that is supposed to be one of the Middle East’s business sources. A report discussed a huge premium takeover from a private equity group in the Middle East. This might have come with cheer to those who were trading the private equity buyouts from 2005 to 2007 before the land grab and gold rush instantly dried up.
The full AME story was titled, “Private Investment Group Arabian Peninsula Group announced today its plan to acquire Harman International Industries in a public tender offer.”
Before the market this morning came a release from Harman stating that the company had no communications regarding a tender offer. The buyout price in the fake news was $49.50, after shares closed at $25.18 Friday. The shares opened at $26.03 and traded as high as $27.71 before the selling came on. Shares have slid all day and are now down 15% late in the day around $21.35. The good news about this compared to the old Emulex Hoax is that the garbage in and garbage out trading was very short lived and not on much volume before the market opened. The bad news is that Harman has traded over 10-times volume on what should have been a low-volume day.
In mid-2000, Emulex suddenly took a dive on press release of a press release that the company’s CEO was stepping down, that earnings guidance was being dropped, and that an SEC investigation was underway. The problem is that the news was fake, and was nothing more than a short seller manipulating the stock. Internet Wire ran the story as a press release, yet it was filed by a former Internet Wire employee that faked the news. Nonetheless, shares fell from north of $100.00 to under $50.00. The NYSE did not stop the carnage in time, and the manner in which it broke trades based upon cut-off times caused severe damage to many traders and investors.
With AME being an international ‘news’ source, it may be hard for prosecution to come in the same manner. The SEC and the FBI may have a harder time pinning this one down. But the Emulex Hoax was punished with a prison sentence of nearly 4 years. Unless the odds are high that a real buyout letter just got lost in the mail system, then someone needs to be reminded about securities law violations with a jail sentence.
JON C. OGG
JULY 20, 2009