SEC Attacks Market Rumors

The Securities and Exchange Commission issued a statement announcing that it and other regulators will immediately start investigating the intentional spread of false information intended to manipulate securities prices.

The SEC has been cracking down on short sellers suspected of spreading false negative information, with a focus on the troubled financial services sector. The new campaign is an attemp by the Commission to be more proactive about it. The move comes amid a meltdown of bank stocks and clamouring by some for an SEC investigation into market manipulation by short sellers. Most recently, law firm Wachtell, Lipton Rosen & Katz called on the agency to investigate. 

Examiners are focusing on enforcing broker-dealer and investment adviser compliance controls. Examinations will be conducted by the SEC’s Office of Compliance Inspections and Examinations, as well as the Financial Industry Regulatory Authority and New York Stock Exchange Regulation.

"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 in the marketplace," said SEC Chairman Christopher Cox. "They will also provide an opportunity to double-check that broker-dealers and investment advisers have appropriate training for their employees and sturdy controls in place to prevent intentionally false information from harming investors."

In recent news, financial firms such as Lehman Brothers Holdings, Fannie Mae, and Freddie Mac were engulfed in government bailout and merger rumors. The announcement was timed to serve as a warning shot to traders prior to the beginning of the trading week, according to The Wall Street Journal.

In a statement issued by the FINRA, firms are reminded of NYSE regulations to monitor trading activity. The FINRA also warns that any market participants intentionally spreading false rumors will be rigorously investigated and subject to civil and criminal prosecution.