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Manipulation suspected of HBOS rumors

Stephen Beard Mar 20, 2008


Doug Krizner: Wall Street’s rumor mill has been working overtime these days. Especially since the demise of Bear Sterns. And it’s doesn’t take much to rattle the stock of a financial company, let me tell you. Yesterday, the commodity-futures broker MF Global was forced to deny rumors about being low on cash. There were stories flying about Merrill Lynch facing more trouble.

And in the British market, rumors about the U.K. mortgage company HBOS nearly toppled the bank. Well now, the U.K.’s top financial regulator is investigating whether those shares were manipulated. Stephen Beard reports from London.

Stephen Beard: Britain’s largest mortgage provider, HBOS, took a beating on the stockmarket yesterday. A rumor circulated the bank had run out of cash. HBOS’ shares fell by almost 20 percent.

The rumor was false, and the share price swiftly recovered. The financial regulator suspects this was manipulation. Traders sell a stock they don’t own, drive down the value of the stock by spreading rumors and then buy back that stock at a lower price, pocketing the difference.

Anabel Brodie Smith, an investment industry spokesperson, says the authorities will have a tough time catching the perpetrators:

Anabel Brodie Smith: They have to prove that they started the rumors, that the rumors were malicious, that people have benefited from the rumors. It is difficult to prove and they haven’t got a good track record on it.

The U.S. authorities are also looking at the allegedly suspicious trading in the shares of Bear Stearns before it was bailed out at the weekend.

In London, this is Stephen Beard for Marketplace.

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