Can the SEC Really 'Quell Rumors'?

by: Todd Sullivan

Does anyone really think the SEC will be able to stop rumors? Really?

The U.S. Securities and Exchange Commission said Sunday that it and other regulators are firing up new examinations to prevent stock-price manipulation by short sellers and others. The agencies' goal is the "prevention of the intentional spread of false information intended to manipulate securities prices."

Now, who is to say what is "false" vs what is "wrong"? We are now delving into the realm of a person's intent, and when you do that it is a loser's game. On another note, why are we only looking at short sellers?

How about CEOs and CFOs of financials who said "things were ok" only to write down billions months later? Are they not just as guilty?

The SEC is up against it in this one because up until now, the shorts have been right and the firms that have come under attack are poorly managed, over-leveraged and have questionable business models for down times. Read Bear Sterns (NYSE:BSC) and Lehman (LEH).

If I "think Lehman has questionable loans and think management is not forthcoming enough so things must be worse,"  then am I spreading false rumors or just speculating? Is this going to be a rear-view-mirror test? Are we going to prosecute people after the fact when what they have said proves wrong? Will journalists get into trouble by reporting these rumors?

In an election year like this one, will we investigate Congresspeople who throw bombs about the economy and stocks in an attempt to curry votes? In effect, they are hurting equities and stock prices by making the current situation seemingly worse than it is. Surely we can prove half of what is said there is "less than truthful."

Is a SEC investigation into Sen. Schumer coming? Clearly his letter led to a run on the bank [IndyMac]. Any bad news is bad for Republicans in the election. Was Schumer pushing Indymac over the edge for votes?  If we are going to investigate Bill Ackman and David Einhorn, let's look at Schumer's motives also.

Rumors have and will be around forever. If you have a strong business, they may affect the share price temporarily, but not impair it. If your business is already weak, they may hurt it.

How about the SEC investigates all those newsletters I get in the mail pumping stocks that never go anywhere?