NYAG and SEC Announce Wide-Ranging Market Manipulation Probes; SEC Adopts New Rules to Combat Abusive Short Selling
By Kenneth M. Breen, Keith W. Miller, Morgan J. Miller and Thomas A. Zaccaro
Continuing their aggressive scrutiny of financial firms and other market participants, New York Attorney General Andrew Cuomo and Securities and Exchange Commission (SEC) Chairman Christopher Cox announced separate investigations of possible illegal actions related to short selling U.S. financial firms. Specifically, regulators are targeting possible manipulation in the securities of financial institutions through naked short selling and the purchase and sale of credit default swaps and stock options. Amid increased pressure from these institutions, and against the backdrop of the recent sudden decline and instability in the financial sector, the SEC also undertook extraordinary measures to temporarily ban short selling in certain financial stocks and to expedite enforcement efforts targeting possible market manipulation. While no firm has yet been charged, the broad probes and emergency actions threaten increased and sustained scrutiny of market participants and industry-wide investigations.