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The War Against Short-Selling Is Joined
Topics:SEC | Stock Market
Companies:Lehman Brothers Holdings Inc | American International Group Inc | Morgan Stanley | Goldman Sachs Group IncBy CNBC.com | 18 Sep 2008 | 03:39 PM ET Font size: A UK ban, NY state probe, and new SEC rules ... short sellers are coming under seige in the wake of this week's market turmoil.

The practice of selling stocks short, or betting that a stock's price will drop, is not illegal. But spreading bad information to manipulate a stock's price or engaging in a conspiracy to lower a stock's price — and thus make a short sale profitable — is against the law.

State Investigation

New York Attorney General Andrew Cuomo said Thursday he is investigating whether some traders used illegal tactics to drive down the stock price of Lehman Brothers Holdings, American International Group [AIG 2.69 0.64 (+31.22%) ] and other firms that have suffered in the ongoing financial crisis.

In the current climate, it is likely that Cuomo's action will be followed by others.

Cuomo told reporters Thursday his office has received a "significant number" of complaints about short sellers.

Surprisingly, an increasing number of stock traders are apparently looking for some type of limitations short selling.