NY AG launches rumor probe

Andrew Cuomo says he is launching an investigation into whether or not traders on Wall Street were spreading false information in an effort to drive down stock prices.

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NEW YORK (CNN) -- New York Attorney General Andrew Cuomo announced Thursday he is looking into whether traders spread false information in an effort to drive down certain stock prices amid the recent turmoil on Wall Street.

The state attorney general said his probe will focus on whether traders spread rumors about firms such as Lehman Brothers, AIG, Goldman Sachs and Morgan Stanley, which have been pummeled by the current financial crisis.

Their goal may have been to profit by engaging in "short selling" -- a popular means of trading that bets a company's stock price will fall, he said.

Though short-selling by itself is not illegal, "you cannot manipulate the price of a stock with false information," Cuomo told CNN. "That is a securities fraud and that's what this investigation is about."

The investigation was launched after authorities received complaints alleging instances of illegal short-selling, Cuomo said.

"Our main motivation is to try to stabilize the market," he said. "We want people to know: if you are engaged in illegal short selling, you better stop and you better stop now."

In a written statement, Morgan Stanley said it welcomed Cuomo's investigation and Cuomo's call for the Securities and Exchange Commission "to impose a temporary freeze on short selling of financial stocks, given the extreme and unprecedented movements in the market that are unsupported by the fundamentals of individual stocks."

Also Thursday, Britain's Financial Services Authority said it is temporarily banning short-selling of shares in publicly traded financial companies. FSA Chief Executive Hector Sants said his organization regards short-selling as a legitimate investment technique, but "extreme circumstances" have required new rules to protect against further financial turmoil. To top of page

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