The SEC warned hedge funds and brokerages that it will crack down on traders spreading false rumours in an attempt to profit from turmoil surrounding collapsing financial stocks like Lehman (LEH) and Fannie Mae (FNM). The SEC warned several hedge funds that they would soon issue subpoenas for their trading records, as well as examine the firms’ compliance and training programs.
It is already illegal for traders to disseminate false information to profit from stock positions. It’s hard to track a rumour to their sources, however, and harder still to make charges stick.
More enforcement for manipulation makes sense, but the SEC has wisely stopped short of following JP Morgan CEO Jamie Dimon’s advice to throw people who “spread rumours” in jail, as all of Wall Street would have been headed for the hoosegow.
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