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Daytrader Charged With Concocting Press Release That Sent Lucent Stock Tumbling

Fred Moldofsky, 43, was arrested Thursday in Houston on criminal fraud charges filed by the U.S. attorney in Manhattan.

A daytrader was arrested Thursday on charges that he violated federal securities laws by posting a fake press release on the Internet last week that caused the stock of

Lucent Technologies

(LU)

to fall, slicing $7.1 billion off its market value.

Fred Moldofsky, 43, was arrested Thursday in Houston on criminal fraud charges filed by the U.S. attorney in federal court in Manhattan. The

Securities and Exchange Commission

has filed civil charges of its own.

Moldofsky posted the bogus press release March 22 on a

Yahoo!

(YHOO)

message board that said, in part, "Based on preliminary estimates,

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Lucent expects operating results for its second fiscal quarter of 2000 to be lower than analysts' estimates," according to the criminal complaint.

The bogus release was modeled on a press release that Lucent actually

issued in January warning investors that its first-quarter results would not meet Wall Street's expectations, an announcement that sent Lucent's shares plunging.

Prosecutors said the bogus press release, which was posted after the stock market had closed, led to another selloff in Lucent, sending its stock down 3.6% the next day. Moldofsky, however, had traded approximately 6,000 Lucent shares on the same day that he posted the release, according to the criminal complaint.

During the afternoon of March 22, Moldofsky, using the screen name "kauna_and_the_brain," posted several messages reporting rumors that Lucent would not meet expectations, according to the civil complaint.

Later that evening, using the screen name "hot_like_wasabe", Moldofsky posted a message on the Lucent bulletin board on the Yahoo! Finance site that said Lucent had released its earnings warning and attached the fake release, according to the criminal complaint.

Using a different screen name -- "Floydian_us," which was designed to resemble a screen name used by a frequent commentator on Lucent stock on the message board -- Moldofsky posted numerous messages with links to the fake release, prosecutors said. One message included a caption that said: "LUCENT WARNS! I'm going to cut my throat."

Moldofsky waived his right to a preliminary hearing in Houston on Thursday and will be transported to New York, said Steven Peikin, the assistant U.S. attorney who is prosecuting the case.

Caroline French, a federal public defender and Moldofsky's lawyer, did not immediately return a call.

"Obviously, we took this matter very seriously; we cooperated with the authorities and we're pleased that this person has been identified," said Jeff Baum, a Lucent spokesman, who said the company contacted the SEC the day the release was posted.

The charge in the criminal complaint carries a maximum sentence of 10 years and a fine of $1 million, or twice the gross gain resulting from the crime. The SEC charges carry civil fines as well.