The New York Times reports that the Securities and Exchange Commission (SEC) is going to begin examining "rumor-spreading intended to manipulate stock prices." Rather than protecting investors against false statements from financial advisers, as happened in the case of the $330 billion now-frozen Auction Rate Securities (ARS) market, the SEC is out to protect executives of companies they run into the ground.

What does the SEC's new policy entail? The Times says that the SEC will start today by focusing on "what policies brokerage firms have in place to prevent the passing of false information. The intent is to stop malicious rumors without hampering the natural exchange of information in the marketplace." I am not a lawyer but it sounds like the SEC will have a tough time monitoring all the exchanges of information among those on Wall Street unless it plans to record every cell phone, land-line, e-mail, IM, and Blackberry exchange all around the world.

Meanwhile, it seems that the government has strained to distinguish between fact and fiction when it makes big policy decisions. For instance, last year Hank Paulson and Ben Bernanke were saying that the subprime problem was "contained." Would the SEC indict Paulson and Bernanke for spreading false rumors intended to manipulate stock prices? After all, their statements -- which are clearly false -- may have had the effect of causing investors to buy stock in non-subprime mortgage lenders. Could they get off the SEC's hook by proving they had no intent to manipulate stock prices?

Continue reading Is the SEC at war with the first amendment?

Is the SEC at war with the first amendment? originally appeared on BloggingStocks on Mon, 14 Jul 2008 11:00:00 EST. Please see our terms for use of feeds.