The Swedish Economic Crime Authority said it would launch a preliminary fraud probe after company news distributor Cision published a statement saying Samsung Electronics Co Ltd was buying Fingerprint Cards for $650 million in cash.
Both Fingerprint Cards, which develops and makes fingerprint scanners used to access computers and mobile phones, and South Korea's Samsung said the press release was a fake and denied they had been in talks.
Shares in Fingerprint Cards rose more than 50 percent on the false statement, before the Stockholm bourse suspended trading.
Cision said its preliminary investigation showed it had been the subject of a "sophisticated fraud".
Fingerprint Cards' Chief Executive Johan Carlstrom critised controls at Cision saying it should have checked that information it was sending out was correct.
"With a bigger press release, they should call to make sure," he said. "There are only two people authorised to send press releases and that is the CEO and financial officer. In those cases they are sent from our e-mail addresses, and this one was not."
Cision said it had followed its guidelines but was making immediate changes to some of its procedures.
Chief Executive Magnus Thell said staff had called a contact number to verify the authenticity of the release and had reached a person who had identified himself as Fingerprint's CEO.
"When it comes to fraud, you cannot protect yourself 100 percent," Thell said.
The contact information in the fake press release included the e-mail address "firstname.lastname@example.org". That domain name, fingerprint-cards.se, was created on Thursday, a search of records on the website of .SE, Sweden's Internet Infrastructure Foundation, showed.
The .SE organisation is responsible for Sweden's top-level domain ".se", including the registration of domain names. A phone number in the release was not available when called by Reuters.
Fingerprint recognition is a hot area after Apple introduced the technology in its latest iPhone saying it would protect devices from criminals and snoopers seeking access.
Shares in Fingerprint Cards have risen almost sixfold since the start of the year.
The Nasdaq OMX Stockholm exchange cancelled trades worth 160 million Swedish crowns in Fingerprint Cards from 10.17 am (0817 GMT) on Friday, just before the false statement was released, until it halted trading 17 minutes later.
The exchange also cancelled 140 million crowns of trades in Fingerprint's rival Precise Biometrics which rose as much as 44 percent when the press release was published.
"Of course we are going to investigate what has happened and we are going to do that with the company in question, the FSA (market regulator) and Cision," Carl Norell, a spokesman for the exchange said.
Trading in both stocks resumed later on Friday. Fingerprint ended the day unchanged at 52.75 crowns, while Precise Biometrics was also unchanged at 2.09 crowns. Cision shares closed 5.3 percent lower.
Reuters withdrew a story it had published based on the hoax press release.
While market manipulation is rare in Sweden, it is not unheard of internationally.
Late last year, a fake press release said Internet giant Google was buying wireless hotspot provider ICOA Inc for $400 million.
Shares of ICOA, which is traded over-the-counter, jumped from .0001 cents to .0005 cents before the company's CEO denied the news.
It remained unclear who was behind publication of the Fingerprint Cards press release.
Gunther Marder, an economist at internet bank Nordnet said the perpetrators probably had positions in biometric firms listed on other markets in Europe not in Fingerprint or Precise.
"You would look around the world outside the territory that the Stockholm exchange supervises," he said, adding that sophisticated criminals would know trading in stocks listed in Stockholm would be cancelled.
© Thomson Reuters 2013