They may not be the most glamorous of villains, but so-called short-sellers are coming under growing scrutiny for their role in the market chaos, Bloomberg reports. New York Attorney General Andrew Cuomo said today he's investigating whether short-sellers spread false rumors about firms such as AIG and Lehman Brothers so they could drive down the stock price and capitalize. The SEC, meanwhile, said it plans to temporarily ban short-selling, the Wall Street Journal notes. The UK has already taken that step.
The practice of short-selling itself is legal: Traders borrow shares they deem overvalued from brokers, then eventually sell them for a profit when the price drops. Cuomo and others want to make sure traders didn't purposely try to send shares into the tank by spreading bad information. Morgan Stanley officials have suggested as much. "I want the short-sellers to know today that I am watching," said Cuomo.