SEC to Probe Manipulation Through False Information

David Scheer
Bloomberg
Monday, July 14, 2008

Wall Street’s biggest regulators are examining whether securities firms adequately police rumor- mongering used to manipulate stocks after shares of Lehman Brothers Holdings Inc., Fannie Mae and Freddie Mac tumbled last week.

The U.S. Securities and Exchange Commission’s inspections unit, the Financial Industry Regulatory Authority, which monitors brokerages, and the New York Stock Exchange’s regulatory arm are checking whether firms have controls in place to prevent the intentional spread of misinformation, the SEC said in a statement today. They will also look at whether employees have been adequately trained.

“The examinations we are undertaking with FINRA and NYSE Regulation are aimed at ensuring that investors continue to get reliable, accurate information about public companies,” SEC Chairman Christopher Cox said in the statement.

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U.S. regulators are already hunting for traders who may have sought to illegally profit from the credit crisis by falsely stoking panics about the stability of companies including Bear Stearns Cos., which collapsed in March amid speculation that clients were pulling business.

Cox told the Senate Banking Committee April 3 the agency takes such manipulation “very seriously” and that lawmakers’ hopes for a crackdown would be “met or exceeded.” In March, the Washington-based agency opened probes into whether hedge funds and other traders spread lies about Bear Stearns and Lehman after those stocks plunged, people familiar with the matter said at the time.

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