SEC Widens Crackdown in Illegal Manipulation of Market Prices
In a widening effort to crack down on suspected manipulation of Lehman Brothers Holdings Inc. and Bear Stearns Cos. shares, the U.S. Securities and Exchange Commission subpoenaed Wall Street's biggest firms and hedge-fund advisers.
The SEC's enforcement unit demanded information from investment banks including Goldman Sachs Group Inc., Deutsche Bank AG and Merrill Lynch & Co., according to people familiar with the case, who declined to be identified because the inquiries aren't public. The Washington-based regulator is seeking trading records and e-mails, one of them said.
The subpoenas mark a new front in the broadest U.S. investigation of Wall Street trading since state and federal regulators targeted mutual-fund abuses in 2003. The SEC issued an emergency order yesterday curtailing short selling in financial stocks, including Lehman and mortgage-finance companies Fannie Mae and Freddie Mac. The agency also is examining whether securities firms have adequate controls to thwart misconduct.
"The SEC is trying to determine whether there was illegal manipulation of market prices, and that is far easier to do if you have a broad sweep,'' said Tamar Frankel, a law professor at Boston University.
Focus on Traders
SEC Chairman Christopher Cox, 55, told the Senate Banking Committee yesterday the agency is investigating whether illegal trading contributed to the collapse of Bear Stearns in March and the 78 percent drop in the market value of Lehman Brothers this year. The probe focuses on traders who seek to profit by intentionally spreading false information about the New York- based firms.
SEC spokesman John Nester declined to comment on the subpoenas, as did Deutsche Bank spokesman Ted Meyer, Goldman spokeswoman Andrea Raphael and Merrill spokesman Mark Herr. It is Merrill's policy to cooperate with regulators, Herr said.
Former Bear Stearns Chief Executive Officer Alan Schwartz and Lehman CEO Richard Fuld have contacted Goldman CEO Lloyd Blankfein, asking whether Goldman traders spread misleading information about the firms, the Wall Street Journal reported today, citing people familiar with the matter. Goldman spokesman Lucas van Praag told the Journal that the New York-based firm was "supportive'' of Bear Stearns, "rigorous about conducting business as usual'' and wasn't involved in wrongdoing.
Published on July 16, 2008
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