SEC Issues Subpoenas in Banking Probe

The Securities and Exchange Commission has reportedly subpoenaed Goldman Sachs(GS Quote) and other top banks and hedge funds in its probe into the rumor mongering that has hammered Wall Street's biggest banks during the credit crunch.

Bloomberg, citing three people with knowledge of the matter, said the SEC's enforcement division has demanded trading records and emails from Goldman, Deutsche Bank(DB Quote) and Merrill Lynch(MER Quote) as they probe possible manipulation of Bear Stearns and Lehman Brothers(LEH Quote) stock.

The Wall Street Journal had earlier reported that more than 50 hedge funds, including SAC Capital Advisors and Citadel Investment Group, also have received subpoenas.

The collapse of Bear Stearns's stock led to its fire sale to JPMorgan Chase(JPM Quote) in March, while Lehman has relentlessly been hammered by rumors about its liquidity position, sapping the stock of more than 80% of its value over the past year. SEC Chairman Christopher Cox on Tuesday said the regulator would crack down on naked short-selling of government-sponsored mortgage giants Fannie Mae(FNM Quote) and Freddie Mac(FRE Quote), as well as broker-dealers like Lehman.

Trading documents reviewed by the Journal indicate that Goldman Sachs' European trading units were the most active parties in trading credit default swaps -- essentially insurance policies on debt defaults -- that it had bought from or sold to Bear Stearns. Moreover, Goldman's money-management division exited a number of swaps on behalf of clients, the documents show.

According to the paper, Goldman, which strongly denied wrongdoing, never altered its terms for doing business with Bear even as lenders pulled their financing and some trading partners retreated during the troubled securities firm's struggles in early March.

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