Much to the dismay of some self-styled "cyber sleupps," the issues of naked shorting, hedge fund manipulation, rumor mongering by paid bashers, etc., just are not going away
Of course, the most dangerous rumors are the ones that aren't true, especially the ones that send stocks south. That's why shorts are being vilified as soulless profiteers.
An executive at Lehman said to me: 'A rumor travels better than the truth. All you can do is deny, deny, deny. But it's like being asked 'When did you stop beating your wife?''
Investors, or at least their lawyers, seem to be increasingly worried about the issue. In the last two months, a series of memos from law firms like Sullivan & Cromwell and Schulte Roth & Zabel have been sent out to banks and hedge funds. As Schulte Roth said in its note to clients, which include SAC Capital Management and Jana Partners, two big hedge funds, 'spreading false rumors in order to induce others to trade in a company's securities constitutes market manipulation.'
Even the Securities and Exchange Commission chairman, Christopher Cox, seems to acknowledge the problem, though he hasn't done much about it. In his letter to the Basel Committee after Bear Stearns was sold to JPMorgan, he said that 'rumors spread about liquidity problems' and that Bear's undoing 'was the result of a lack of confidence, not a lack of capital.'
A spokesman for the SEC said, 'We definitely are vigorously pursuing rumors that are fraudulently manipulating markets.' He said the commission was often working behind the scenes and had a 'hedge fund working group' that is looking directly at the issue. He also pointed to the indictment of a hedge fund manager in April, who he said spread takeover rumors as proof that the commission was doing its job.
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