The FBI yesterday arrested a man in connection with a bogus online news release which last week wiped $2bn (£1.3bn) from the stock market value of Emulex, a Californian networking company.

Last night, the US attorney's office was due to file criminal charges alleging that the man made $250,000 from the hoax.

The suspect, understood to be a student in his 20s, was arrested at a house in Los Angeles.

No further details were released, although the man was expected to be charged with fraudulent use of the internet.

Shares in Emulex fell more than 50% last Friday after a bogus press release announced that it was in financial trouble. The release, disseminated by Internet Wire, an online public relations service, announced falsely that the company's chief executive had resigned, that it expected to lose money in the next quarter and that it had been forced by regulators to restate 1998 and 1999 earnings.

The report was picked up by Dow Jones and Bloomberg news wires and the share price of the company sank.

Stock market watchdogs such as the securities and exchange commission immediately launched an investigation, as did the FBI and US attorney's office. Civil action is also being considered.

The rapid spread of the news and devastating effect on Emulex's stock price has prompted a review of operations by several news services and public relations firms. Many fear that the growth on online news has encouraged the race to deliver news at the expense of fact checking.

The unnamed man is not the first to be held in custody for alleged internet fraud involving the financial markets in the US. A securities day trader was arrested in March for allegedly posting a bogus press release about Lucent Technologies.