Thanks, that is an interesting article.
Everyone thinks that the SEC only cares about P&der's.
I think that now they are starting to level the guns on the flip side.
here's the article.
Lehman Brothers Battles Online Rumors
By Ianthe Jeanne Dugan
Washington Post Staff Writer
Saturday, October 10, 1998; Page D01
NEW YORK, Oct. 9—Wall Street lives on rumors and whispers. Traders gossip about the stocks heading up and the companies facing trouble -- any kind of information that gives them an inside edge.
Nobody knows this better than Richard Fuld, the veteran bond trader who is chairman of Lehman Brothers Holdings Inc., one of the nation's biggest investment banks. "For 30 years," he said in an interview today in his waterfront office in the heart of Manhattan's financial district, "I've heard hundreds and hundreds of rumors."
Now rumors are spreading that Lehman is teetering from heavy financial losses -- and Fuld is desperately rallying employees, reassuring creditors and complaining to the Securities and Exchange Commission before the firm is permanently damaged.
"If SEC regulators find out who started these stories," Fuld said, twisting a rubber band around his finger, "I'd like to have 15 minutes with them first."
Fuld insisted that Lehman is on sound financial footing, and ascribed dark motives to those who spread gossip to the contrary. Lehman makes a tempting target: The markets are in turmoil and many Wall Street houses are facing steep losses. Lehman is no longer affiliated with American Express Co., its one-time deep-pocketed partner. It specializes in bond trading -- one of the most turbulent markets. And it doesn't have a retail brokerage or credit card operation that could help diversify its earnings sources.
Fuld has taken an unusually aggressive approach to attacking these rumors -- and Lehman's battle against death by rumor offers an unusual journey into the heart of the modern-day rumor mill. The rumors have been brutal to Lehman's stock price, which hit a high of $85 on July 13 and closed as low as $24.75 this week. Bond market investors are demanding far higher yields than normal to buy Lehman's debt.
Corporations for centuries have been at the center of rumors, but the Internet has given gossips a worldwide platform. Electronic hangouts operated by Yahoo, America Online, the Motley Fool, Excite and others have become loosely-regulated vehicles for speculation, rumors and lies.
Last year the SEC was inundated with complaints about what it dubs "pump and dump" -- brokers who spread positive, but false, information about small companies to sell stock. But only recently, when the stock market began to tank, did the SEC start getting flooded with calls about bad news clobbering stock prices.
"I call it cybersmear," said John Reed Stark, chief of the office of Internet Enforcement. "This is the flip side of pump-and-dump. . . . More and more companies are calling us and saying someone's out there spreading lies about us and it's out of control. We're very concerned about it."
Stark will not talk specifically about any company or verify investigations. But the case involving Lehman would be the first case the SEC handled involving attempts to cut down a company's stock price. A source close to the case said the SEC suspects the Lehman rumors may come from traders who had bet Lehman's stock would decline and potential acquirers looking to knock down the company's value.
"They started to feel directed at us," Fuld said. "There appears to be a pattern or a theme."
The Lehman rumor began at 8:35 a.m. on Sept. 11, with a sketchy report on the Reuters news service that a major Wall Street firm was about to declare bankruptcy. Investors automatically assumed it was Lehman Brothers because its main businesses are in the heart of the economic turmoil sweeping the globe.
Thousands of calls came in -- from customers, clients, creditors and the media. Tom Russo, a managing director, got a panicky call from his mother. "She was having her haircut, when the hairdresser started started talking about Lehman Brothers filing for bankruptcy," Russo said.
The company dashed out a terse paragraph denying the rumors. Executives assured investors and the media that Lehman was solid. Fuld told employees to ignore the stories. "I said, keep your head down, forget it," he recalls. "They'll go away."
But never had he seen a bear market collide with Internet technology. Online, rumors began swirling that the Federal Reserve was scrambling to find a buyer for Lehman. Traders, economists and analysts began talking aloud about Lehman's impending collapse.
Fuld called Richard Grasso, chairman of the New York Stock Exchange, and invited a team to look at the firm's books, aiming to beat a request by the NYSE because of the rumors. The hope was that, when asked, the Big Board would pass a counter-rumor. Indeed, an exchange official confirmed that Lehman was examined and "was in compliance."
Then came the near collapse of Long-Term Capital Management LP, the high-flying hedge fund that secretly leveraged itself to the hilt with the help of many of the world's biggest investment banks. Late last month 14 banks and investment firms, including Lehman, met at the Federal Reserve of New York to cobble together a $3.6-billion rescue.
Eleven firms contributed $300 million each. Lehman Brothers debated whether to contribute anything at all, Fuld said, because it had a relatively small exposure to losses from the fund. If it contributed $300 million, Fuld reasoned, it would look to the world as if Lehman was heavily involved. If it contributed nothing, "we would be chastised by our peers," Russo said.
Lehman ponied up $100 million. But this only fueled rumors the company could not afford any more money. Online, chat groups were full of gossip, with speculation that Lehman's exposure was equivalent to its stockholders' equity of $5.5 billion.
"Each and every one of these rumors was proven to be incorrect," Fuld said. Last week Lehman put out a highly unusual press release about its earnings, outlining what it described as minimal exposure in emerging markets and to hedge funds. Still, online the debate raged on. The Federal Reserve was seeking a buyer, cyber-citizens wrote, the company was out of cash. One person, under the moniker "Short-Term Capital Management," wrote in a late-night posting on Yahoo Oct. 2 that Lehman would be acquired by the end of October for $37.50 to $42.50 a share.
"The guys running this firm are smart enough to realize they are too small to make it in the next cycle and may not last out the current one without some deep pockets," the writer said. Someone else wrote back: "I don't think anyone would touch LEH [Lehman's stock symbol] . . . If Goldman is tanking it, you know there must be some real problems at LEH."
Fuld has been working full-time to stave off any further deterioration by meeting with as many interested parties as possible. During the International Monetary Fund meetings in Washington this week, he held 20 private sessions to quell concern. And he soon will hit the road, visiting at least 20 major stock holders and creditors to set the record straight.
"When people are nervous, it goes away 75 to 80 percent of the time after they talk to me face to face," he said. "Our problem is not our profit-and-loss statement. It's fear."
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