Just Like 1938?

In a memo to clients yesterday, the executive committee at Wachtell, Lipton Rosen & Katz, one of this country's leading corporate law firms, urged the Securities and Exchange Commission to clamp down on what it calls "record levels" of abusive short selling.

Specifically, WSLK is urging the SEC to re-instate a 70-year-old "uptick rule" which is intended to restrain short selling in a declining market. The rule requires a security can only be sold short at a price above its last sale price.

"Today many of the same conditions that led to the adoption of the rule in 1938 are reappearing...there are suggestions that false rumors about the demise of firms (such as Lehman Bros. and Bear Stearns) and bear raids are taking place," said the memo, signed by Edward Herlihy and Theodore Levine, as reported in a story in the Financial Times.

Wachtell represents JP Morgan Chase in its pending $1.18 billion acquisition of Bear Stearns, itself the possible victim of short-selling, among dozens of other corporate clients.