Goldman Subpoenaed; Short-Sellers Targeted

Acting quickly to investigate the spreading of false rumors in financial markets, the SEC has subpoenaed Goldman Sachs, Deutsche Bank, Merrill Lynch, and more than 50 hedge funds to trace the source of rumors that have destroyed the value of Bear Stearns and Lehman Bros. stock.

This move comes as SEC Chairman Christopher Cox has ordered a temporary halt to “naked” short-selling in a handful of financial stocks (the order takes effect on July 21, see list here). “Naked” short-selling allows investors to sell a stock without actually owning or borrowing it. This enables the investor to drive down the price with nothing more than a bunch of sell orders. The temptation for manipulation is great, and naked shorting with the intention of driving down prices is illegal (you see, when you short, you just have to hope).

At any rate, this is all good stuff and should put some of the shorters back on their heels and give these financial stocks a little room to breathe.

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