With all of those options that traded last week in Bear Stearns, many have been wondering, us included, if the firm was helped into the abyss. Apparently, now the SEC may be wondering the same thing:
U.S. regulators are investigating whether traders illegally sought to force Bear Stearns Cos. shares into a tailspin last week by spreading false information about the firm's finances, two people familiar with the inquiry said.
The Securities and Exchange Commission probe is focusing on whether hedge funds or other investors bet on a drop in the company's shares while disseminating rumors that the New York- based company was nearing collapse, said the people, who declined to be identified because the inquiry isn't public. The New York Stock Exchange's regulatory arm is also involved in the investigation, the people said.
Speculation about a cash shortage spurred customers and lenders to pull money from Bear Stearns last week, driving the shares down 57 percent between March 7 and March 14. Two days later, the fourth-largest U.S. securities firm was acquired by JPMorgan Chase & Co. for $2 a share. The company's decline coincided with a surge in investor bets that the stock price would plunge. The SEC's probe is unusual because most of the regulator's stock-manipulation cases focus on penny stocks.
``The commission is in uncharted territory,'' said Peter Henning, a former U.S. Justice Department prosecutor who teaches at Wayne State University Law School in Detroit. ``The problem will be separating out the trading from the noise in the market. There was a lot of speculation about Bear."
SEC Opens Bear Stearns Stock Manipulation Inquiry, People Say - Bloomberg
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