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Washington, DC - Rep. Barney Frank, chairman of the House Committee on Financial Services, today sent a letter to U.S. Securities and Exchange Commission Chairman Christopher Cox, calling on the Commission to broaden its investigation of questionable trading of Bear Stearns stock in the days preceding its collapse to include trading activity in the stock of all of the large investment banks. Chairman Frank noted that, “Depending on what the Commission finds, this may lead to a broader inquiry into short selling by the SEC and Congress.”
The full text of the letter as follows:
April 4, 2008
The Honorable Christopher Cox
Chairman
U.S. Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Dear Chairman Cox:
As you know, in the days preceding the collapse of Bear Stearns there was an unusually high level of short selling activity in the firm’s stock as well as the purchase of then out-of-the money put options. There are strong indications of similar market activity in the stocks of other major investment banks. Some allege this was a coordinated activity on the part of various market participants—who also pushed rumors the banks were in trouble—in an effort to drive share prices down.
Under appropriate conditions, short selling contributes to the efficiency of capital markets. But manipulative or collusive short selling threatens the markets’ integrity. I understand the Commission has turned its attention to the questionable trading in Bear Stearns’ stock. I strongly encourage you to widen your review to include trading activity in the stock of all of the large investment banks. Depending on what the Commission finds, this may lead to a broader inquiry into short selling by the SEC and Congress.
I would appreciate if you would keep the Committee informed of the issues that arise out of your review.
BARNEY FRANK
Chairman
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