The Anatomy of a Bogus Press Release

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It was all so gosh-darn believable. The look and feel of the release. The wording. The unemotional, dispassionate description. We really believed that Emulex (EMLX:Nasdaq - news - boards) had imploded and would now disappear as a force and as a stock.

"Emulex Announces Revised Earnings" was the headline. That's totally credible. Think about it. Do you think any company would ever release "Emulex Says Earnings Were Way Too High; Should Be Slashed"? Or "Emulex Says Uh Oh!"? The subhead looked so real : "SEC Launches Investigation Into Accounting Practices. Paul Folino Steps Down As Ceo." Again, I thought you had the cinema verite there. Folino wasn't kicked out, he "stepped down." SEC involved? Of course. But the next line should have been a tip-off. Not the first phrase: "Emulex Corp. (Nasdaq:EMLX), the world's largest supplier of fibre channel adapters" (That was good work. Notice the fraudsters spelled fibre right!!) But the rest: "announced that last quarter's earnings will be revised and will fall short of previously annnounced net income for the fourth quarter of fiscal will be revised to a loss of $0.15 per diluted share, compared with net income of $3.0 million, or per diluted share, for the same quarter a year" (sic).

Huh? That's just gibberish. The release leaves out "year" after "fiscal." The writer left out the pennies per diluted share and instead mentions dollars. That should have been a sign. But who got that far? By the time we had read the headlines, we were in motion. You couldn't possibly bother to read the rest.

The next two paragraphs were simply borrowed from other releases and again, looked fantastically accurate and the "Safe Harbor" stuff was classic. Who wouldn't believe? Other than the sloppy stuff about the quarter, this release read perfectly. These guys knew what they were doing. I am sure they were short Emulex and were using the $2 billion break to bring in the short.

Unfortunately for the fraudsters, I have some bad news. Once they are discovered (and they will be very easily, I am afraid) here is what will happen: They will have to regurgitate the gains and will still be short the darn thing. And now it will be even higher. Just desserts! And everybody else who got fooled? They get a shot at being reimbursed by the shorts who perpetrated this, too. They better hope they covered and went long! They will need every penny they have!

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James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at James J. Cramer .