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Lehman drops a dime
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October 5, 1998: 12:45 p.m. ET
Investment bank tells SEC the source of liquidation rumors
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NEW YORK (CNNfn) - Lehman Brothers Holdings Inc., a leading U.S. investment bank, apparently has given regulators information it was gathering in an attempt to identify the source of stock-crippling rumors that Lehman is struggling financially.
Citing inside sources, the Wall Street Journal said Lehman officials were unable to trace the rumors to traders or investors who Lehman originally suspected of trying to manipulate its stock and debt prices for profit. Instead, the bank reportedly traced the source to an undisclosed London-based publication.
The firm also reportedly passed on to the Securities and Exchange Commission and the New York Stock Exchange data about investors with short positions in its stock -- those betting that Lehman's share price would fall by selling borrowed shares -- the Journal's sources said.
Rumors of Lehman's impending liquidation began spreading among traders and driving down the investment bank's stock price several weeks ago.
Calling the rumors untrue, Lehman Chairman Richard Fuld told the Financial Times the company is solvent, and he said the investment bank has around $34 billion worth of capital and $5.5 billion of equity.
Lehman (LEH) shares were down 1-3/8 Monday afternoon at 27-5/8 on the New York Stock Exchange, down dramatically from a 52-week high of $85 a share. The investment bank's 6.5 percent notes, due in 2008, sold at a yield of 92 basis points above Treasurys, are now trading at about 350 basis points above.
Over the weekend, Lehman said its total exposure to hedge-fund derivatives and foreign-exchange contracts is $425 million. It reportedly has more than $583 million of collateral in cash, Treasuries and agency securities.
The company said its exposure to Long Term Capital Management, the hedge fund that was rescued in a $3.6 billion bailout package last month, is about $32 million.
The SEC investigation may mark the beginnings of a wide-spread investigation of major brokerage firms to gauge their exposure to the largely unregulated hedge-fund industry.
The Wall Street Journal reported Monday that the agency is considering a plan to conduct "sweeps" in which its Office of Compliance Inspections and Examinations would review the records of brokerage firms and interview their executives.
No formal decision has been made, according to the report. 
--from staff and wire reports
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