U.S. regulators are investigating whether traders spread false rumors about Lehman Brothers Holdings Inc.’s financial soundness to profit from a drop in the company’s share price, two people familiar with the probe said.The Securities and Exchange Commission has expanded an inquiry into whether investors including hedge funds tried to manipulate Bear Stearns Cos. stock to also review a decline in Lehman’s shares, said the people, who declined to be identified because the inquiry isn’t public. The Lehman probe examines short sales of the company’s stock, one of the people said.
Lehman, the fourth-largest U.S. securities firm, has tumbled 26 percent this month amid speculation that Wall Street firms can’t fund their operations. A run on Bear Stearns two weeks ago forced the fifth-largest U.S. securities firm to sell itself to JPMorgan Chase & Co. at a fraction of its market value with financial support from the Federal Reserve.
“It makes a lot of sense to me to look at Lehman if you see the same movements,” said Tamar Frankel, a law professor at Boston University. “If someone is spreading baseless or misleading rumors in order to profit from the impact on the market, that’s really a threat to the system.”
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