Wall Street giants hit by SEC probe into short-selling
American regulators have subpoenaed top investment banks, including Goldman Sachs, Deutsche Bank and Merrill Lynch as part of an investigation into the suspected manipulation of Bear Stearns and Lehman Brothers shares.
The US Securities and Exchange Commission (SEC) has also approached more than 50 hedge funds to obtain trading and communications data. The inquiry aims to find out whether any illegal manipulation of share prices might have happened. It follows the curtailing this week by the US authorities of naked short-selling in some institutions.
In a separate development, it was claimed yesterday that Alan Schwartz, who headed Bear Stearns when it collapsed in March, and Lehman chief executive Richard Fuld, both confronted Goldman boss Lloyd Blankfein with rumours that some of his London-based traders might have been talking down those banks.
But a Goldman spokesman told Morning Wire that the bank completely rejected any suggestion it was involved in denigrating Bear or Lehman. “It is completely counter-cultural for us to do so and executives of both those companies know very well that we were extremely supportive, and in the case of Lehman Brothers we continue to be very supportive. We resent the suggestion we have behaved otherwise.”
Is the US doing enough to arrest the financial market panic?
Paul Ashworth (Capital Economics): “It is doing what it is expected to do now it has been put in this corner. The Treasury is standing behind the debt of Freddie Mae and Freddie Mac, but it is not supporting shareholders. Hence, the shares are still falling.”
Mike Lenhoff (Brewin Dolphin): “It is doing all it can, but the market is currently determined to see the worst. The Fed has been very clear that investment banks can continue to borrow at the Fed window. With inflation so high, its hands are tied.”
Richard Shelby (US Senator): I fear we’re sitting on a financial powder keg. You could be risking the taxpayers’ dollar here. To give you a blank check… I’m not sure. Officials may envision never using the powers but what if they did?