Saturday, July 26, 2008

SEC-Stock Manipulator

"The [SEC], under fire for not responding more vigorously to a raft of rumors that have pounded stock prices, says it is cracking down on firms or individuals that illegally spread false rumors. ... The announcement was timed to be released hours before the trading week began in Asia, in hopes it would serve as a warning shot to traders, a senior official said. ... Nothing final has been decided, but Lehman executives have long pushed for SEC action to stop the rumor mongering around their stock. Sunday, people close to the firm said Lehman hopes the SEC move will stop the fall of its stock until it has time to put together a plan. ... The SEC began its antirumor campaign Friday, calling several hedge funds to warn that subpoenas for their trading records related to Lehman were imminent, people familiar with the matter said. SEC officials weren't specific about what period of trading they planned to examine, these people said. ... Many top Wall Street executives have complained privately about the apparent lack of action, saying traders knowingly spreading false rumors were in part responsible for the unraveling of Bear Stearns Cos., which was sold to J.P. Morgan Chase & Co. in March for a fire-sale price. ... Lehman Chairman and Chief Executive Officer Richard Fuld Jr. [RF] has been encouraged to step up and buy shares of Lehman as a vote of confidence in the firm he has run since 1993", my emphasis, Kara Scannell, Susanne Craig and Dennis Berman (SC&B) at the WSJ, 14 July 2008.

"The [SEC] has sent subpoenas to more than 50 hedge-fund advisers as part of its investigation into whether individuals spread false rumors to manipulate shares of two Wall Street firms, a person familar with the matter said", WSJ, 15 July 2008.

"'When markets are moving this fast, people have a right to expect the information they are trading on is reliable.' SEC Chairman Christopher Cox said Monday. 'We want people to understand that the cop is on the beat, that subpoenas are going out, there are investigations under way'," Houston Chronicle, 15 July 2008.

"Lehman Brothers, which has seen its shares tumble sharply over the past few weeks, would seem to have much to gain from news that federal regulators are dialing up their scrutiny of market rumor mongering. The firm has complained that false rumors have been a driver of its recent share declines", WSJ, 15 July 2008.

"Bear markets often involve bear-knuckle fights, but it is still a shock when the referee starts punching below the belt. The [SEC] has intervened in the epic struggle between financial companies and the hedge funds that are short-selling their shares. ... The SEC's moves deserve scrutiny. Investment banks must have a dizzying influence over the regulator to win special protection from short-selling, particularly as they act as prime brokers for almost all short-sellers. ... The SEC's initiatives are asymmetric. It has not investigated whether bullish investors and executives talked bank share prices up in good times. Application is also inconsistent. ... Like the Treasury and the [Fed], the SEC is improvising in order to try to protect banks. But when the dust settles, the incoherence of taking a wild swing may become clear for all to see", Economist, 17 July 2008,

"As the dust settled from the rout of financial stocks earlier this week, the little clown cars came zigzagging up the Street. Have no fear, the [SEC] is on the case. Christopher Cox, the regulator whose only visibility during this financial crisis has been to proclaim Bear Stearns' soundness just hours before its collapse, will shake down every short-seller in America if he must to find someone he can blame for the financial flameout. ... In fact, what Cox has done is just one more distraction, one more attempt to make people think that maybe this crisis can be solved with easy pen strokes. ... The SEC, though, is more concerned with silencing the skeptics. We blame the short-sellers. We blame the speculators. Never, though, do we blame the people who made bad decisions. ... For all the fretting about rumors, Cox and his clown squad haven't announced a single investigation into misleading statements by CEOs. ... The SEC's move, then, is exactly what it seems: market meddling that props up the dogs while silencing the critics", Loren Steffy (LS) at the Houston Chronicle,, 18 July 2008.

"In the latest game of markets blameball, hedge funds are getting slammed. Should they be? ... Members of Wall Street's establishment, including J.P.Morgan Chase & Co. Chairman James Dimon and top corporate-attorney Martin Lipton, have urged regulators to step up their patrol, and even put a crimp on short selling in general. ... Some say the assaults are little more than the latest chapter in a long history of financial scapegoating. ... High-profile managers such as David Einhorn and William Ackman have been leveling criticism against giant financial firms for more than a year. Judging by the numbers, they have been vindicated, but their pointed attacks have engenderd hard feelings", WSJ, 18 July 2008.

The SEC's contempt for the public is appalling. Alan Sloan of Fortune, my 18 July 2008 post reported RF got $489 million from stock sales over the past few years. What is RF complaining about? RF has a terrific opportunity. I give RF another put up or shut up. Lehman (LEH-NYSE) is currently $21.10. It was $14.27. Did you, RF, buy any at $14.27? If you didn't, SHUT UP! If it's worth more than $21.10, buy. On margin. Plenty. RF, I salute you. At least you unloaded Erin Callahan. The SEC's "investigation" is a blatant attempt to support investment bank shares. I didn't think stock manipulation was the SEC's job. This is more poor WSJ reporting. If SC&B "know" rumors are pounding stock prices, did they buy? Why are they reporters as opposed to running a hedge fund? If the SEC is still harassing David Einhorn, I hope he gives it another black eye. Or worse. Maybe Einhorn and Ackman should hire an attorney who was an AUSA and have him draft "indictments"for RF, Chris Cox, and anyone else they think appropriate, then hand deliver the "indictments" to Mike Garcia (MG) at a "press conference" in front of the SDNY US Attorneys Office. Maybe Justin Fox, my 9 July 2008 post will attend and ask MG what he intends to do with the "indictments"? Maybe it's time for a hedge fund manager to tell MG that the SEC is aiding and abetting securities fraud. Well Mike, will you look into it? The complaints of "top Wall Street executives" are more nonsense. If rumors killed Bear, why didn't these executives outbid JPMorgan and buy Bear? Why give JPMorgan this "bargain"?

The SEC can say whatever it wants. I think it sent the subpoenas to prop up investment banks' share prices.

Well Cox, are investors entitled to "reliable" information in slow markets? What do the securities laws require? If there is inaccurate information, where do you think it comes from in large part? Hedge fund operators or SEC registrants? That's it Cox, do your best Captain Renault routine, "Round up the usual suspects".

I note that Erin Callahan recently left LEH. False rumors? List them.

The Economist has this knocked. Well Cox?

I agree with LS. I await any Wall Street CEO's being added to the Bear Stearns Two indictment.

Well Cox, will you join Lipton's firm when you leave the SEC? Why don't you do something useful like investigate LEH's disclosures for the past few years?

No comments: