NEWSWIRE - September 4, 2000

Topic: The Firm’s Responsibility to Stockholders

Source: "E-Mail Trail Leads to Emulex Hoax Suspect," by WSJ Staff Reporters, The Wall Street Journal, September 1, 2000, pages C1-C2.

Synopsis: On August 25, 2000 at 9:30 a.m., a news release was issued on the internet. The release explained that Emulex, a fiber-optics firm, had fired their CEO, would have to revise previously released financial statements, and was under investigation by the SEC. The news was widely reported and Emulex’ stock price fell from $113 to $43 in heavy trading. Within hours of this disclosure, Emulex issued a statement that the prior news release was totally false. A hoax had been perpetrated on the firm, its shareholders, and other market participants, and major news agencies. Emulex stock closed at $105.75. The article provides additional details including the identification and capture of an individual who allegedly made over $240,000 on trades related to the stock’s enormous decline and subsequent rebound.

Discussion Questions:

1. What is the primary goal of corporate management? What responsibilities do the managers of Emulex have in this situation?
2. Why were the concerns raised about earnings in the hoax so powerful? What is the relationship between earnings per share (EPS) and share price?
3. Explain the role of security markets in corporate finance.