Securities and Exchange Commission’s actions in cases of illegal insider trading or stock manipulation are essential in improving market efficiency. The potential that informed parties such as corporate insiders, brokers, underwriters, large shareholders and market makers are likely to be manipulators, as it has often been the case – is quite real. The reality is – these groups are close to the information loop, therefore their tendency of exerting less than honest influences toward their own best interests, obviously, increases.
Illegal insider trading is apparently a growing concern at the Securities and Exchange Commission, prompting the SEC, according to a WSJ report – to sent subpoenas to more than 50 hedge-fund advisers.
The subpoenas are seeking communications data related to short-selling and options trading in Bear Stearns Cos or Lehman Brothers Inc. Some of the hedge-fund advisers have received subpoenas related to both probes, while others were contacted with respect to only one.
The near-collapse of Bear Stearns earlier this year, which saw the investment bank sell for a bargain-basement price of one billion dollars to JPMorgan Chase, pushed the SEC to start investigating whether a combination of false rumors and manipulative short-selling combined, drove down the shares of the 85-year-old investment giant.
Lehman Brother’s shares also have been under pressure for quite some time. “There are a lot of rumors in the marketplace that are totally unfounded. We are suspicious that the rumors are being promulgated by short sellers of our stock that have an economic self interest,” Kerrie Cohen, a spokeswoman for Lehman Brothers, told Reuters.
Among the firms that have received subpoenas are Citadel Investment Group LLC in Chicago and SAC Capital Advisors in Stamford, Conn.
The subpoenas relate to trading in securities of the brokers, as well as correspondence between the hedge funds and other parties. The subpoenas are part of a broad inquiry, and firms that have received subpoenas were told by the SEC that they aren’t necessarily the focus of specific allegations.
Monday, Wall Street law firm Wachtell, Lipton, Rosen & Katz published a memo calling the new examinations into compliance programs “an important first step.” But it said “the SEC needs to undertake additional bold measures to constrain abusive short-selling and rumor-mongering.”