The Securities and Exchange Commission today announced that the SEC and other securities regulators will immediately conduct examinations aimed at the prevention of the intentional spread of false information intended to manipulate securities prices. The examinations will be conducted by the SEC's Office of Compliance Inspections and Examinations, as well as the Financial Industry Regulatory Authority and New York Stock Exchange Regulation, Inc.
The examinations we are undertaking with FINRA and NYSE Regulation are aimed at ensuring that investors continue to get reliable, accurate information about public companies in the marketplace," said SEC Chairman Christopher Cox. "They will also provide an opportunity to double-check that broker-dealers and investment advisers have appropriate training for their employees and sturdy controls in place to prevent intentionally false information from harming investors."
The SEC's move came amid heightened concern that short sellers and hedge funds have been peddling lies about several large financial companies - Bear Stearns Cos. Inc. and Lehman Brothers Inc. among them - in an effort to drive down their stock prices and profit from the resulting slide.
Market-manipulation cases are difficult to prove. Traders live and die by information and are constantly talking to one another. It is illegal, however, to knowingly spread false information with the intention of profiting from its dissemination; for example, by shorting a stock and saying the company is in danger of collapse. The problem is tracking down the original source of a rumor and proving that traders knew the information was false when they told others.