The SEC is trying to stop Wall Street players from spreading rumors that sink stocks, as I posted yesterday. The reason such rumors matter is because there are many companies that are unable to defend themselves from rumors. Bear Stearns comes to mind as an example. I think if someone tried to spread a rumor that Goldman Sachs Group (NYSE: GS) or Berkshire Hathaway Inc. (NYSE: BRK.A) were heading for bankruptcy, the rumor would not get foo far.

But if a company lacks such a strong reputation, its CEO needs to be prepared to respond effectively to such rumors. And I really don't think it should be difficult to mount an effective defense. In my mind, the CEO should be able to provide credible answers to two questions:

• Cash flow. How large are the company's short- and medium-term liabilities and how many times do the market value of its short- and medium-term assets cover these liabilities?
• Debt default. What are the company's key loan terms and what specific assurance can the company provide that it is in compliance with these terms?

The Wall Street Journal reports (subscription required) that the SEC has subpoenaed 50 hedge-fund advisers as part of its probe into allegations that traders spread negative rumors to drive down the share prices of stocks they were short.

It seems especially zealous given how little the SEC has done to crack down on a multitude of other problems harming investors, like the inadequate disclosures of serious risks that have sent shares of companies like Lehman Brothers (NYSE: LEH) and Washington Mutual (NYSE: WM) tumbling.

Maybe there was some foul play at hedge funds, and maybe it's a good use of SEC resources to go after it. But it's worth noting that, throughout history, every time a bubble has burst, the short sellers who profited from its demise have been scapegoated for their foresight. The men who were at the helm of Bear Stearns (Yes, it was men. Women would never foul anything up that badly!) when it collapsed can blame rumor-spreading short sellers for causing a run on the bank. It's the same excuse that former Enron CEO Jeff Skilling invoked in his testimony before Congress.

Yesterday I blogged, with a good degree of skepticism, about the SEC's announcement that it is cracking down on rumor-spreading fear mongers looking to profit from declines in stocks like Fannie Mae and Freddie Mac. In one of his daily email newsletters, hedge fund manager/all-around smart guy Whitney Tilson quotes one of his friends:

Thank God someone is doing something about this. Because, as we all know, our financial regulators have done such a good job in overseeing the institutions that are suffering from this evil conspiracy. What would be even better is if the SEC, NYSE, etc. could identify and "bring to justice" those hedge funds and short-sellers that, through a vast conspiracy with the ever-compliant press, forced bank/brokerage management teams to make the trillions in bad loans that now imperil our economic system.

Exactly. Regulators did nothing to protect investors and consumers from this mess, and have sat idly by while so many companies have failed to level with investors about their problems. The reason that the rumors have such impact on the market is that many investors have concluded, correctly, that they can't rely on these firms to provide timely updates about their prospects. If BEAR STERNS COS INC (NYSE: BSC) was a victim of rumor-spreading short sellers, it was also a victim of its diminished credibility that created an opportunity for manipulation in the first place. The SEC should focus on actual problems, not rumors which, last time I checked, have always been part of the market.

In a press release issued on Sunday -- presumably meant to be a warning to traders before the opening bell on Monday -- the SEC announced that "the SEC and other securities regulators will immediately conduct examinations aimed at the prevention of the intentional spread of false information intended to manipulate securities prices."

Cash-bleeding train wrecks like Bear Stearns and Lehman Brothers (NYSE: LEH) have complained that rumor-mongering has damaged investors by causing a precipitous slide in their stock prices. Bear Stearns executives have essentially blamed short-sellers for the company collapse which is, interestingly, the same argument made by Enron's former head honchos. Just saying.

I don't doubt that there's a fair amount of hanky panky on the part of short-sellers looking to profit from declines in share price, but I think that massive writedowns and a lack of transparency at these companies have been larger factors. As DealBreaker recently noted, "if a company can be brought down by the corporate equivalent of 7th grade girls passing notes in class, perhaps it doesn't deserve to exist anyway."

The Wall Street Journal notes (subscription required) that "The need for such a move by the SEC took on new urgency after a brutal week in the U.S. stock market, where major financial firms such as Lehman Brothers Holdings Inc., Fannie Mae and Freddie Mac were battered as rumors about everything from government bailouts to possible mergers flew across Wall Street."

This just in: Fed to rescue Fannie Mae, Freddie Mac. Apparently those mean short-selling trash-talkers were onto something.

MGL Asset Management Group's press release purporting to offer $7.25 per share for Krispy Kreme Doughnuts (NYSE: KKD) was pretty quickly debunked as illegitimate and, very probably, an effort to hype the stock for a quick buck. Jon Ogg reported on the mysterious offer on our sister site, BloggingBuyouts.

The stock jumped on the news of the offer, but quickly gave up all the gains and then some after media and analyst reports dismissed the offer. But anyone who jumped on the stock at the sight of the press release got burned.

How can you prevent this from happening to you? A good rule of thumb: When you're looking for information on material developments, look to the SEC filings. The offer was made solely through a press release -- something that anyone with a few hundred bucks to pay the wire fee could send into the hands of millions of investors in a few minutes. Until you see something about the "offer" in the SEC's Edgar Database, it should be regarded as a rumor. I wrote about a similarly non-materializing offer at Trans World Entertainment (NASDAQ: TWMC) back in November.

Another solution is to leave the "in-play" trading to the pros -- it's all about information and you're unlikely to have an edge. If you see a news item that a company has received an offer, don't jump in.

I seriously enjoy reading Ina Steiner. She's the editor of AuctionBytes.com. I like her stuff because she's just so damn objective. She simply lays out the facts and lets you come to your own conclusions. I also like Ina because she continuously holds a very bright light directly at eBay (NASDAQ: EBAY).

Recently, Ina opened the floor at the AuctionBytes blog for discussion about the involvement of Meg Whitman in the Mitt Romney campaign. Needless to say, the situation has raised some eyebrows. Personally, I don't care what direction either Meg or Mitt choose to go. Ina's readers, however, had a very dim view of the situation. My question is, has Meg's insurgence into the political realm affected the shareholders of eBay?

Forget for a moment all the ill conceived plans that eBay has tripped over. Ignore the Skype debacle, the eBay China crash, the silencing of Stubhub and the host of other demons that in my opinion the Whitman crew has set loose, buried or denied. Forget for a moment about all that cash flowing into eBay coffers with nothing better accomplished than to outsource customer service and to pay Whitman's salary. Ignore the wolf at the door in the form of Amazon Inc.(NASDAQ: AMZN). Never mind that eBay has lost its shine and reputation and is yet to pay a dividend to its shareholders. I'm talking about presidential politics and corporate wrangling here.

Shares in chip-maker Micron Technology, Inc. (NYSE: MU) are trading higher on rumors that Samsung Electronics may buy part of their business. The South Korean Electronics giant is denying the report. Micron Technology of the U.S. is the world's leading producer of CMOS image-sensing chips. Micron three years ago invested heavily in image-sensor chips as a hedge against fluctuations in demand and prices of memory chips. Business has been very week as prices for these chips have plummeted. That being said, chip-makers have started cutting production to create better pricing.

Morgan Stanley (NYSE: MS) analyst Atif Malik said he understood why investors are getting excited about a potential price rebound for Micron shares as chip makers are starting to cut production in some less-profitable types of chips.

While Samsung denies the rumors, I wouldn't be surprised if a deal gets done. Why? Because in October Samsung bought Israeli non-memory chip developer TransChip Inc. to help strengthen its research and development capability in the CMOS chip business.

With Micron shares down more than 35% from their 52 week high, Samsung would be able to establish a real foothold in this business for cheap.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position in any stock mentioned as of 12/6/07.

A Wall Street source has told me that there is a rumor floating around that current Treasury Secretary Hank Paulson is leaving his post to take over Citigroup Inc. (NYSE: C).

Naturally, this rumor interests me because I have posted wistfully about this outcome for the last several months. While Paulson may not be the greatest Treasury secretary in American history, he had an excellent track record at Goldman Sachs Group (NYSE: GS) and he would do his reputation a big favor if he could step into Citigroup and save it from ruin.

Citigroup has been hurting badly all year. In the first part of 2007, it suffered because its costs were growing faster than its revenues. Then it missed its third-quarter earnings numbers and announced a much bigger-than-expected write-down of assets related to subprime mortgage-backed securities. This culminated in the departure of Citigroup's CEO, Chuck Prince on November 4.

One of my favorite Jim Cramer-isms is "Commandment No. 5" -- Tips are for waiters. Here's what he writes:

You know that the best moves are takeovers and you are convinced that if you can catch one, it will make up for all the bum steers and bad bets you have made. Tips are winning lottery tickets in most people's eyes.

That's the reason I've had to default to a simple analogy, tips are for waiters, to remind myself how stupid tips really are. Does it occur to you, on hearing the tip, that if the person telling you that Nokia is going to buy RIM really knows that's going to happen, the person is an insider and is breaking the law, and you could get in trouble, too? Does it occur to you that if the person isn't an insider, he doesn't know? There simply is no way a tip like that can work. Leave it for the waiter.

That's what investors should be keeping in mind as they watch shares of E*Trade (NASDAQ: ETFC) surge on extraordinarily vague takeover rumors. Shares were up as much as 25% on rumors that Schwab and Ameritrade were interested in buying the beleaguered broker. Where did these rumors come from? Ah, yes. "A source." And who's to say that "the source" isn't some clown holding a ton of E*Trade shares that he needs to get rid of -- for 25% more than they were trading before the rumor?

Everyone knows E*Trade could be in play -- any time a stock tanks that much, there are always going to rumors. But no one really knows what's going on, and buying E*Trade on the rumor is just mindless speculation.

As Doug McIntyre wrote, "E*Trade may be worth over $5, but it could also be worth a lot less."

Goldman Sachs Group Inc. (NYSE: GS) is getting a boost today from other stocks in the industry, like Countrywide (NYSE: CFC), which reported a big Q3 loss this morning, but also said it expects its earnings per share in the fourth quarter to range between 25 cents and 75 cents. It also anticipates its return on equity for 2008 to range between 10 percent and 15 percent. This outlook is lifting the stock nearly 15%. Furthermore, Merrill Lynch (NYSE: MER) is reported to be considering replacing its troubled CEO and maybe even a takeover offer, which is pulling that stock and other financial interests higher as well. If you think that the company won't fall by too much in the coming months, then now could be a good time to look at a bullish hedged trade on GS.

Goldman has powered back from its 52-week low of $157.38 in August to a new high of $239.70 earlier this month. GS opened this morning at $232.86. So far today the stock has hit a low of $229.36 and a high of $233.50. As of 11:05, GS is trading at 231.45, up 4.79 (2.1%). The chart for GS looks bullish and steady, while S&P gives the stock a very positive 5 STARS (out of 5) strong buy rating.

For a bullish hedged play on this stock, I would consider a December bull-put credit spread below the $180 range. A bull-put credit spread is an options position that combines the purchase and sale of put options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 5.3% return in just 2 months as long as GS is above $180 at December expiration. Goldman would have to fall by more than 21% before we would start to lose money. Learn more about this type of trade here.

The M&A rumor mill hyping a buyout of Lexmark International Group (NYSE: LXK) by Xerox Corp. (NYSE: XRX) has been silenced. On Friday, when Xerox reported a 53% drop in third-quarter earnings, company CEO Anne Mulcahy commented on a suggestion that her firm might be looking to buy rival printing concern LXK.

She quickly put these allegations to rest, noting: "I don't think Lexmark is an ideal candidate . . . there is nothing [it] would bring to the table that would be really value-creating for us."

But Mulcahy certainly is not acquisition-averse; she has overseen Xerox's purchase of four companies in the past 15 months. She noted that Xerox hasn't ruled out deals with smaller companies that would help bulk up her company's software offerings.

Shares of Trump Entertainment Resorts (NASDAQ: TRMP) are up 17% after the Star Ledger of Newark reported that the Cordish Co., a Baltimore developer looking to get into the casino industry, is looking a buying the company.

Shares of Trump have plummeted in recent months after the company dismissed an offer from Dennis Gomes as too low.

According to The Ledger, "Analysts have long said finding a buyer for Trump Resorts is a long shot. The company carries a heavy debt load -- $1.25 billion plus a $500 million line of credit -- and would be an expensive proposition. A buyer also would have to pay a premium on the price of the company's bonds. And Trump has veto power over the sale of any of the casinos. If he waives that right, the company would have to pay up to $100 million to cover taxes he would owe in a sale."

The huge jump in the stock price is hard to fathom. Merrill Lynch spent months searching for a buyer with little success even as the stock price tanked which, in theory, should have made it a more attractive target.

Trump is bloated and in terrible shape, lacking the funds to revitalize itself. Oh, and Trump Entertainment Resorts is in a similar situation too.

I'll be shocked if anything comes of this latest rumor.

A reader recently asked us here at BloggingStocks.com to check out whether it was true that Sears Holdings Corp. (NASDAQ: SHLD) was a stockholder in Consumer Reports. The answer is no. There are no stock holders. The following information and more is available at ConsumerReports.org

• Consumer Reports® and ConsumerReports.org® are published by Consumers Union, an expert, independent nonprofit organization whose mission is to work for a fair, just, and safe marketplace for all consumers and to empower consumers to protect themselves. To achieve this mission, we test, inform, and protect. To maintain our independence and impartiality, CU accepts no outside advertising, no free test samples, and has no agenda other than the interests of consumers. CU supports itself through the sale of our information products and services, individual contributions, and a few noncommercial grants. Consumers Union is governed by a board of 18 directors, who are elected by CU members and meet three times a year. CU's President, James Guest, oversees a staff of more than 450.

Apparently some appliance salespeople were saying SHLD had a stake in Consumer Reports, which rates Sears' brand Kenmore consistently among the highest. I do not know how these silly rumors get started or why our inquirer could not have easily researched this on their own. But the internet works both ways; rumors and hoaxes get out of hand much too fast these days.

I hope we at Bloggingstocks.com have helped put an end to this one.

To find potential opportunities and verify my track record read Chasing Value or Serious Money.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He is on the advisory board of Internet start-up CircleBuilder.com.

Beazer Homes USA (NYSE: BZH) is mad as hell and isn't going to take it anymore. One among a growing contingent of sad-sack homebuilding stocks, Beazer has plunged more than 18% today, nearing a seven-year low amid rumors that bankruptcy proceedings could be over the next rise.

A senior trader with U.S. Global Investors told Bloomberg that "We're hearing Beazer is supposedly going bankrupt ... if in fact that comes to fruition, the market's going to be in a world of hurt." A Morningstar analyst noted that "The fear (surrounding BZH) is pretty palpable." And a trading analyst with Cowen & Co. opined that "There's some speculation Beazer Homes may be in some sort of trouble, although it's uncertain whether it is financial or legal."

Quick to refute such claims, Beazer officials released a statement noting that "We do not know where these scurrilous and unfounded rumors started. For an accurate representation of the company's financial position, including the company's liquidity and near-term prospects, we encourage investors to refer to the company's recently released third quarter [sic] earnings release...."

Joseph Snider, an executive with Moody's Investors Service, affirmed that "[Beazer is] more liquid than they were before ... we think it's just a bear raid on the company." Snider told Bloomberg that today's machinations were essentially "much ado about nothing..."

Speaking of Shakespeare, today's actions from Beazer hearken back to the words of Hamlet's mother, Queen Gertrude, who wonders if a character's act of protesting too much suggests the contrary is true.

Beth Gaston Moon is an analyst at Schaeffer's Investment Research.

Apple Inc. (NASDAQ: AAPL) shares are down 3% today -- according to TheStreet.com and Theflyonthewall.com, a Miller Tabak & Co. note cites speculation from Goldman Sachs traders that Apple will cut production of the iPhone and/or the iPod. Keep in mind this is unconfirmed chatter despite specific numbers given of reducing iPhone production from "9 million units to 4.5 million units."

Apple, which has just announced its iTunes Store has sold more than 3 billion songs since its debut in 2003, has not commented yet, not that anyone expected it would. If there's any truth to this, Apple will come out with a well-timed official announcement. Otherwise, the news would dissipate.

TheStreet.com doesn't stop there, adding that it has reported that iPhone demand has been less than anticipated: "People familiar with the company said at the time that Apple were prepared to sell out the 1 million phones it had ready for its weekend debut." But Apple, as you recall, had sold just 270,000 by June 30. Right now, all anyone can do is wait and see if this "unconfirmed chatter" has legs.