SEC to Crack Down on Short-Sellers' Stock Manipulation

The SEC, under heavy pressure for not responding more forcefully to a raft of rumors that have pounded stock prices of companies such as Lehman Brothers, announced that it will investigate rumor-mongering and stock price manipulation on Wall Street.

The need for such a move by the SEC took on new urgency after a turbulent week in the U.S. stock market, where major financial firms such as Lehman Brothers , Fannie Mae and Freddie Mac were battered by rumors about everything from government bailouts to possible mergers.

"I think there should be criminal prosecution at a high level because that’s the only thing that stops those people," said Jon Najarian, co-founder of Optionmonster.com. "Otherwise they just pay a fine and move on." (See the accompanying video for more.)

"People hear rumors at cocktail parties, but there’s really something sinister going on today, particularly with the banks spreading rumors that customers are stopping doing business with Lehman Brothers. That has a tremendous effect on the market," he said.

"In this market, any kind of rumor is being taken seriously," said Jake Zamansky, a lawyer at Zamansky & Associates Securities. "People spreading these rumors, in many cases have driven out the likes of [Bear Stearns] and potentially Lehman Brothers. People spread false information, outright lies, to drive these companies down."

Meanwhile, executives at Lehman Brothers, whose shares fell nearly 17 percent Friday alone, are working on a plan to put the firm on more solid footing and stop the free-fall in the company's stock.

“I think it’s incumbent upon the SEC to get the people those false rumors and, companies should come up and ask for proof. If they don’t have the proof, these people should be prosecuted,” added Zamansky.

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